In today’s high-cost, inflationary market, just raising the rent isn’t enough. If you want to combat rising prices, supply chain issues, and climbing costs of labor, creating value-adding income streams is also critical.
“Ancillary income is a powerful driver of revenue,” says Roman Stephens, senior vice president at Northland. “It often goes unheralded.”
Northland properties, which span 16 states, have created profitable income streams out of cable and internet offerings as well as through smart-home packages that include electronic locks, thermostats, leak detection sensors, and more.
These are just a small slice of the options that operators have when devising new revenue opportunities. As Lance Dreher, senior director of ancillary at MEB, puts it, “There is an opportunity everywhere you look. Do you pay bills? Do your residents pay rent? Do packages get delivered? Everything has an opportunity.”
He’s right: But how do you find those opportunities, and, more important, how do you put them successfully into action? These best practices can help.
1. Think of Tenant Needs and Monetize Them
Understanding your tenants is the first step to creating successful new revenue streams. What do they need or already use? What are their pain points? What conveniences would they find valuable? Issuing surveys and questionnaires can help here.
“Having an idea of the necessities and luxuries your resident wants is essential in finding additional income streams within properties,” says Mark Foraker, senior vice president of operations at Barvin.
One option is to take something your residents are already purchasing—something they’d spend money on with or without your help—and find a way to monetize it. Northland’s smart-home packages are one such example.
“Our most notable ancillary income generator is the rollout of our smart-home technology package, which is currently installed in approximately 9,000 apartment homes, representing nearly 40% of our portfolio,” Stephens says. “Residents pay roughly $25 per month, in addition to their base rent, for all the benefits of smart locks, thermostats, Alexa integration, and water sensors.”
Upgraded internet services are another example, as these are services most tenants would purchase regardless of property or location. “Sign an MDU agreement with a large internet provider for large-bandwidth, high-speed internet for each unit,” recommends Jaime Hinojosa, head of asset management at Palladius Capital Management. “By doing this, the property can secure a lower price for high-speed internet to each unit at a much lower cost than an individual tenant can find in the open market. It’s a win-win situation for both the tenant and owner.”
2. Stay Ahead of the Curve
Staying abreast of lifestyle and work trends can inform smart revenue-making decisions, too. The ongoing work-from-home movement, for example, is one place to start.
According to the U.S. Census Bureau, the number of Americans working from home tripled between 2019 and 2021. Currently, about 58% of workers—or around 92 million—have the option to work either full time or part time from home. Operators can capitalize on this trend by adding leasable workstations and conference spaces. If these can be rented on a convenient mobile app, removing yet another hurdle, the earning potential is even stronger.
Electric vehicles are another trend to watch—especially now that the Inflation Reduction Act (IRA) has passed. The IRA incentivizes EV adoption, giving consumers up to a $7,500 tax credit on qualifying EV purchases. By 2040, a whopping 18 major car manufacturers will go fully electric.
“As EVs continue to gain market share, installing EV charging stations is becoming more common at multifamily properties, providing another income stream to the owner,” says Robert Gaulden, director of multifamily channel strategy at Allegion. “While this new income stream is still in the beginning stages, we expect it to grow as EVs become more prevalent among renters.”
Outdoor amenities and activities (hello, pickleball) have also seen growing interest from tenants. While reservable courts are one way to extract income from this trend, properties can also monetize related storage solutions.
“Apartment communities are starting to adopt amenity experience closets, where bulky items like camping gear and bicycles are available for residents to use for a nominal fee,” Gaulden says. “With the right solution in place, they can reserve these items and enter the closet using their app.”
3. Have the Right Foundation
As Gaulden alludes, many potentially profitable revenue streams rely on a good technological backbone, so make sure you have the foundation in place before deploying. This might mean having a propertywide app that tenants can connect to or, in many places, a smart access or locking system that allows for secure in-unit entry.
“Access control is becoming a foundational part of new revenue opportunities,” Gaulden says. “Underutilized spaces can be converted to flex spaces for the resident. These can be reserved and utilized by the resident, giving them options when they are working from home or want to host a party. Building gyms can host third-party fitness instruction, scheduling popular resident choices based on direct feedback in their app. All of this is made possible by having a seamless smart access system.”
Smart locks and access systems also enable outside services that tenants might find useful—and be willing to pay additional fees or higher rents for. These include things like pet-sitting services, dog walking, in-unit grocery deliveries, and more.
“To be successful, you have to ensure there are minimal barriers to entry,” Gaulden says. “Can the dog walker easily access the building when needed, while maintaining security? Does the solution integrate well with the current operations of the building?”
4. Be Careful How You Bill It
Finally, be thoughtful about how you market and charge for your new revenue streams. As Dreher explains, “With every value-added service, smart-home perk, or countless other features comes a small fee charged to the ledger. Often, residents agree to these services, but when the bill comes, it’s a tough pill to swallow.”
Sometimes, rolling these added services into a single fee or line item can help ease adoption. It can also provide operators with some much-needed wiggle room when determining which ancillary services to add and how much to charge.
“We are starting to see the industry distance themselves from the microtransaction model to a branded amenity fee,” Dreher says. “Bundling these charges allows management teams to fine-tune the overall ancillary revenue stream.”
