Photo by Mediamodifier on Unsplash
Welcome back to our series on Multifamily Apartment Budgeting for Tuesdays. I apologize for any confusion last week when I accidentally published Tuesday’s post on Sunday. This week, we will be discussing Month-to-Month Premiums.
Month to Month Premium Defined
The month-to-month premium, also known as the month-to-month fee or MTM fee, is a charge that is applied to residents whose lease has expired without renewal. This fee can either be a significant flat rate or a healthy percentage of the monthly rent. The main goal of this fee is to encourage residents to renew their lease instead of continuing on a month-to-month basis. However, if a resident needs to remain on a month-to-month basis, the fee helps to offset the risk of too many leases expiring in a given month.
Month-to-Month Budgeting Strategy
Including your month-to-month leases is crucial when reviewing your lease expirations every month. For instance, if you have 100 units and five leases expiring in August but also have five month-to-month leases, you have ten expiring leases in total. This means that ten leaseholders could provide notice to vacate, which may result in a significant drop in occupancy.
As for budgeting month-to-month fees, I would use twelve months of history to forecast the future. Charge-up is the more significant thing you must deal with regarding this line item. This fee is often waived out of sympathy for the leaseholder’s situation. Gentle reminder: we are in a business to make money, and part of making money is pricing in a risk premium on items with potential downside effects, like the scenario above. So, charge the fee and collect it.