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, unlike 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.
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,
pic props: Tony Jacobson
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.
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.
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 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,
We continue this week with the next line item in our apartment budget: Parking Income.
Parking Income Defined
Parking is an interesting subject. Interesting in the sense that one could posit that it should come included in the rent. While the other camp would suggest that it is an ancillary income and thus should be accounted for on a separate line item.
To define it simply – it is income derived from renting the right to use space in your parking lot or parking garage. That space could be reserved for exclusive use or the right to at very least have access to a space.
If you have a stabilized operation this is pretty simple. Look back at your twelve months of trailing history, consider rate increases and straight line it. Or, ebb and flow it with occupancy.
If you are in lease up – the work is a little more difficult and starts with a full market survey. Not unlike we do competitive surveys for assistance in pricing apartments – we do this to get a sense for pricing parking spaces. Now – no matter if you have a surface lot or a garage, I think it important to understand the pricing for both. And, I think it important to get a sense for what the barriers are.
I define barriers as the 3 block, 5 block and 10 block radius. I also lump in nearby walkable attractions be it football or baseball stadiums, museums or vibrant cityscapes. It all matters in your pricing and budgeting strategy. It really boils down to proximity with a bit of supply and demand layered over the top.
Once you have your market survey complete – you have to consider how quickly the spaces will get absorbed. If you have a plethora of spaces this is not an issue. But, if you have a dearth this is a big deal. You don’t want to sell out too soon. Neither do you want to get to the end and have left over inventory albeit I would prefer this to selling out to soon.
The key is paying close attention to what the market is telling you, be nimble and don’t be afraid to increase rates along the way.
Why Don’t We Include Parking in the Rent
I have asked this question no less than a dozen times and still to this day don’t know that I have a clear reason.
The top two reasons that I can recall off the top of my head are, 1. Tracking 2. Financing/valuation.
Would love to hear your feedback on the subject – until then…
Your apartment budgeting multifamily maniac,
One in Ten Americans Has a Self-Storage Unit
“Human laziness has always been a big friend of self-storage operators,” Derek Naylor, president of the consultant group Storage Marketing Solutions – New York Times article. I would say to my apartment friends – we/you need to get a piece of that action. Build garages not for parking cars but rather storing junk. Do some dual marketing – call it storage and or garage. It’s a place to put stuff and things.
Storage is such an epidemic that we now have Storage Wars (reality TV show) aimed at celebrating the agonies and lamenting the defeats of would be bidders. It also doubles as a back door way of marketing the self-storage business – a post for another day.
Storage Income Defined
Simply put – this is income that comes from those dusty old basement storage spaces that everyone tends to forget about.
Storage Income is a way to drive revenue to your bottom line. If your property has the space (basements are great for this) – consider the option of building out some simple caged space that people can use to store stuff. Or, if you already have it, just remember to market it. Price it to sell, create scarcity and urgency. Heck, give it away (for short stints) just to get people hooked on having it. Trust me, once they move their stuff in – as suggested above – they will be too lazy to move it out. Boom – you chance to get an extra $5 or so a month.
No real strategy here. Look at your trend lines over the trailing 24 months and get yourself an average. Use that average to straight line your storage income account and think about adding some inflation for the coming 12 months.
Any Other Thoughts On Storage Income?
Your having an amazing and over the top day multifamily maniac,
I have taken a bit of a pause here at MBG due in large part to Mills Properties budget season. Every year around this time we dive head first into a process that takes the better part of two plus months to complete. We do our best to space it out so that any one VP, RM or AM does not get creamed. And, in the same respect it does take a good deal of focused time to do a budget right. With that in mind, I want to get back to posting to the blog as it provides good therapy for the day-to-day hustle of property management.
Today’s topic is telephone income.
Telephone Income Defined
Telephone Income is derived from a couple of different sources. Roughly twenty years ago plus or minus, it came from the likes of AT&T and or other local providers. Our on site sales teams would offer to transfer existing phone service or they would initiate the call for new service to be set up. For that, the property received a commission. It didn’t amount too much but it was income.
Around the same time, at least according to my aging memory, revenue share models arrived on the scene. Similar to cable and internet shares, in exchange for exclusive marketing rights, the providers gave the property owners a piece of the revenue. The share amount was equal to your ability to negotiate. These amounts started to mean something in the way of overall property value. Not huge but something nevertheless.
Cell phone towers changed all that. Providers would come in, especially in the case of high-rise buildings, and pay huge lump sums with ongoing payments. They would erect cell phone towers on your building and or land, sign mega long contracts (10 years plus) and be on their merry way. Huge deal when it came to adding value to your real estate.
I have likely left out a few income angles so feel free to fill in the blanks. And, thank you ahead of time.
This line item is a bit different from the prior line items. That is in terms of straight lining the income based on history. Because the income is based on contractual terms and agreements you can plug the income. That is to suggest that sometimes the payments are made annually, quarterly or monthly. And, they are specific in amount. Whatever the case, review your contracts, make note of the payment amounts and months they are to be paid and enter accordingly.
It’s good to be writing again. I really miss this part of my world. In the same respect, it felt good to take a pause.
Your looking forward to rockin’ the world today multifamily maniac,