Annie McClinton smells a rat, and it might be hiding in your basement.
As vice president of Irvine, Calif.–based Multifamily Ancillary Group, which provides contract negotiation and ancillary income audit services to apartment operators, McClinton sees many operators leaving money on the table in the form of seldom-reviewed third-party service contracts.
“We see telecom and laundry contracts passed on with lousy terms and missed revenue all the time,” McClinton says. “A lot of times, operators negotiate in-house and believe they’re getting the best terms and revenue share, but they’re leaving thousands of dollars on the table.”
By breaking out separate revenue shares for Internet, video, and telephone subscribers at a property based on pre-set penetration ratios, McClinton says many communities can increase their revenue stream by 20 percent or more.
Some operators say breaking out utilities based on square footage, or even a flat rate per month per unit, can help generate significant ancillary income at a property. “A small increase of as little as $5 per month on a 250-unit apartment complex will result in the addition of $15,000 in annual revenue, with no additional cost, to the property income and expense statement,” says Barbara Gaffen, co-CEO of Northbrook, Ill.–based Prime Property Investors.
McClinton points to the airlines, with their unpopular-but-profitable add-on fees, as a model, and one that multifamily operators are starting to wake up to.
“It’s clear that the multifamily industry is slowly beginning to recognize the importance of ancillary revenue,” McClinton says. “You’ve always got to be looking for the maximum opportunity to enhance your portfolio.”
Other opportunities, such as charging for electric-car ports, premium parking, and even pet fees can help to boost your NOI, without invoking sticker shock over your rents.
“In today’s market, residents will pay the $25 per month to have their pet and won’t think twice about it,” says Nicholas Dunlap, vice president of Fullerton, Calif.–based Dunlap Property Group,
He also notes that an increased deposit—of up to an additional $500—helps offset any extra wear and tear on your unit. Like many operators, he points to being pet friendly as a key differentiator, especially with renters who may have owned a home in the past. “Just allowing pets is a major selling point to advertise at your property. Residents will happily pay pet rent and an increased deposit.”
In Chicago, Kiser Group takes another tack on deposits entirely, offering residents the option to forgo them if they agree to a lesser, but nonrefundable, move-in fee.
“Security deposits are supposed to be refundable, but if they’re needed for unit repairs, it ultimately causes a rift between the landlord and the exiting tenant,” says Lee Kiser, principal of Chicago-based broker and consultant Kiser Group. “A $250 move-in fee is instead a one-time charge, not a deposit, and can go directly to your bottom line as income. Tenants like it too, because they don’t have to tie up a whole month’s rent for the duration of the lease.”