Apartment Budgeting: Trash Income

Trash income is not a dirty business.

It’s time to talk trash. Not that recent election type trash. Not the fiscal cliff type trash. And, not your run of the mill sports trash talk. Albeit, that has its place and is fun when kept in good spirit. No – we are talking about making some income from your apartment communities trash collection.

Trash Income Defined

Trash income comes from charging back or passing through the expense that you incur for having your communities trash hauled away. And, RUBS Trash Incoeunlike water and sewer income – trash is not a regulated utility. That means you can charge back more than your monthly invoice. For reference, I have seen this number range anywhere from $3 to $8 per occupied unit per month.  I would highly recommend that you use a third-party utility billing firm to administer this for you. Typically, this is billed monthly with your water and sewer charges. The more sophisticated services include rents and other applicable fees on the same monthly billing statement.

Budget Strategy

This one is fairly straight forward and most budget models will have a formula baked in. If not, you can take your average number of occupied units over the course of the year and divide the total trash spend by that number to come up with an annual per unit number. You can then divide that number by 12 and the answer is the minimum number you should charge per month to recoup your cost. For example:

Community: 212 units – 94% forecasted 2013 occupancy – $12,000 trailing 12 months trash bill (forecasting zero increase for 2013).

212*94% = 201.4 average occupied units

$12,000/201.4 = $59.58

$59.58/12 = $4.97 per occupied unit

This is the minimum amount you would want to bill back in order to recoup the full cost of your annual trash bill. Now remember – trash is not a regulated utility. With that fact in mind, I think it prudent to charge more. In this example, I think $6 or $7 per occupied unit is completely in line.

In closing, increases in utility cost historically outpace rent increases. That said, it is would be borderline careless to not share that cost with the people who benefit from the services.

Your always looking for a way to maximize revenue multifamily maniac,

M

 

pic props: Tony Jacobson

 

 

 

Apartment Budgeting: Water Income

It is known as RUBS or Ratio Utility Billing Service.

It’s Tuesday and time for another installment of Apartment Budgeting. This week we talk water. We all know that utilities are likely the fastest growing line item in your annual budgets. And, if you haven’t tapped in to sharing this expense with residents – then read on. But, more important – act. If you have tapped in – please stick around and add to the discussion at the end. As I am sure to leave some important details or alternative angles out.

Water Income DefinedRUBS

It is known as RUBS or Ratio Utility Billing Service. And, water income  is just one piece of the picture. We will discuss the other pieces over the coming two weeks.

Water income is derived from taking your total monthly water bill, applying a ratio formula to it and then billing it back or passing it through to your residents. Now, it is much more complicated than that simple definition but you get the gist.

It is also much more complicated than simply splitting your water bill across the respective occupied units in a given month. And, don’t be tempted to take the easy way out and settle on billing a per unit type flat rate. It’s tempting to do it this way but trust me – it’s much better to partner with a company versed in this art we call RUBS.

*Item of particular merit about utility billing – this is a highly regulated business and you are not a utility company. Under no circumstance can you bill back or pass through a number that is in advance of your monthly bill. You will love not the consequence if you are caught.

There are a number of good companies out there to partner with. Our friends over at Appfolio Yardi and RealPage, just to name a few, offer it as an add-on to their respective property management software packages. Or, there are independents that focus 100% on utility billing. Either option is okay. I am personally a fan of working with your PM software provider.

Budgeting Strategy

This a bit more complicated than looking at trailing information. Given the fact that utility spends amplify at a pace far in advance of rent growth (save a few crazy good markets in the country) you will definitely want to pass the increases along. The billing will also ebb and flow with occupancy and a number of other factors.

In this case, it’s best to work with a really good accountant who can build a formula into your budget template that considers all the factors for you. I liken this to one of those math word problems that many of us struggled with back in elementary school. Email me if you need help with this one.

Next Week 

Next week we will be tapping the keys about sewer income – smelly as it may be…

Sending my thoughts and prayers to those who have been set back by the Super Storm,

M