Apartment Budgeting
Multifamily Apartment Budgeting: Month to Month Premium
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.
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Apartment CapX Budget Over Again
The Apartment CapX Budget is Over Again? How many times have you heard that statement in some form of fashion? And, I am sure – if you are anything like me – you just can’t understand it. Nor, in all fairness, do you take the time to understand it because you have a million other things that need your attention. But, I do have an idea as to why…
Humans Make Mistakes
Simply put – humans make mistakes. And, or they are innately incapable (not a dig – just plain reality) of thinking about every little nuance of a project. Or, they are too confident in their ability to forecast. But, most of all there are just too many steps in the process. And, the more steps there are the more opportunity there is/are for mistakes.
Apartment Project Management
A project is set up as a series of steps and each step has a probability of failure. With that in mind, I thought I would list a few examples of where exactly things can go wrong:
bad process, choice of vendor, equipment/mechanic, technology, your expectations are mis-communicated or not well understood, wrong leadership, wrong manager, inexperienced leader, poor choice of incentives, deciding to try something new, ordering the wrong product, product ordering mishaps, shipping delays, delivering the wrong product, weather, ignoring the canary in the coal mine, killing the canary in the coal mine (no canaries were harmed when writing this post), no tracking, loose tracking, leaning on our ability to track it in our heads.
And, the list goes on and on and on.
Solution: Fewer steps.
I think it is easy to assume that the weak link defines the extent of the success or the failure of the project. And, with all of these areas of opportunity for error – it’s no wonder that many times we come in over. But, still not acceptable in my head.
It’s a problem I am thinking through from an operational perspective. It’s one I think is solved with less steps and fewer people. And, I’m sure it will result in some posts along the way.
Hope your weekend is a crazy good one.
Your consistently thinking about apartment project management multifamily maniac,
M
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Apartment Budgeting: Collections
In our last installment we wrote about the Legal/Collections line item. This week we are going to venture through the collections line item which is tightly knit to the Legal/Collections line.
Collections Defined
Collections is the line where we book or code monies you collect via third-party agencies. These are monies from accounts whereby you have given up collection efforts and turned them over. If that agency is fortunate enough to collect on that account then (after they take their fee) they send you a check. This is the line where you book that check.
Budget Strategy
This is another line item where history (while not the best dictate) is the place to look first. Look at a twelve to 24 month history and do some averaging to come up with the number. Or, if you would like to get a little more sophisticated, call the agency and ask them what their success rate (what percentage of accounts are they able to collect from and what on average to they collect) is? Ask them the total amount they are trying to collect on at that moment in time. Add to that, what, on average, you send over in a given month. And, put together a math problem forecasts that amount over the coming twelve months.
Now, here is what I have to say about that last piece. Have you ever heard the saying, “splitting hairs” or the “law of diminishing returns”? It makes no sense to me (and, that is just me) that anyone would take the time to get down to the brass tacks on this line. It’s such a small amount of money and doing the research to get precise is a border-line waste of time.
So work off of averages – if you can.
Your not likely to split hairs over small amounts of money multifamily maniac,
M
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A Little Bit of Play Keeps The Madness Away
JHerzog · · 2 Comments
Sure, most of the time it’s about the residents and the hopefully-soon-to-be residents, but sometimes it needs to be about us (you know, us…the ones who work hard daily to keep the residents happy and the property running smoothly).
Sometimes it’s important to focus on the team. Whether it be personal bonding, a special event, or special recognition, taking a little time out for play during a tough month, week or even day, is a necessity. Over the past couple of months, I’ve heard stories or witnessed events or pictures of events that describe what I’m referring to:
- Recently, one of our properties accomplished a great task, and instead of just a pat on the back, congratulatory e-mail or extra bonus, they got a unique gift: Dunk the Owners Day. The owners and President of Mills Properties designated a day, came out dressed in goofy swimwear and each took their turn being dunked by the team members . It was a unique, special, once-in-a-lifetime day for the whole team, and just what they needed after months of hard work.
- Another story I heard doesn’t have to do with taking the time out to recognize an accomplishment, rather, just taking the time out. One of our office teams designated the newly popular song Call Me Maybe by Carly Rae Jepsen as dance party time. Every time the song comes on in the office, they stop what they are doing and have a quick dance party. A quick couple of minutes to let loose, smile and re-energize. Great for bonding and taking some time out to focus on the team.
- Still another example is a property who extravagantly celebrates their teams’ birthdays (extravagant for what you would typically see in a business office at least). There are balloons, confetti, flowers, gifts, and pictures. Pictures that go up on the property’s Facebook page that then give the associate extra recognition from other property’s team members and residents. And we all love getting a little acknowledgement on our birthday so it becomes an extra special birthday for them. It almost makes you want to come to work on your birthday.
I love their ideas and creativity and I think these types of events and celebrations are a necessity in every business. I was recently given the task of assisting with budgets. My responsibility is the Marketing/Advertising section. You know – the Outreach Marketing, Newspaper & Internet Advertising, Resident Events/Promotions lines. I haven’t examined the entire budget line by line, but I haven’t noticed a line item for Employee Events/Recognition anywhere yet. Maybe it’s because it’s called something else. Or maybe because it’s not there…but I think it should be.
Not all of the events cost something (like the sporadic dance parties), but sometimes they do, and I don’t think it should be the responsibility of the team members to provide special employee recognition/”play time” every now and then. I think if there were a budget for it, we would see more of it, and in my opinion, it would lead to more team bonding, more motivation, more employee satisfaction, less turnover and a more smoothly run property.
Do you agree?
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Apartment Budgeting: Legal/Collections
We are working out way down the Other Income vertical in our budget series and today we are going to explore Legal/Collections.
Legal/Collections Defined
These are charges that are assessed back to residents for attorney’s fees and or fees associated with collecting outstanding apartment related debts. That is to suggest if you hire an outside agency to levy and or collect debt on the behalf of your apartment community, then you can and should charge it back to the resident. And, the legal/collection line is where you would book that income.
Budget Strategy
This is another line item where the use of history as the best dictate is likely the best practice. There is no real way to determine exact velocity or exact amounts to budget. In the absence of that precision – it would be best to pull your last 12 or 24 months trailing and come up with some averages.
Your wishing for a cool-front to roll in multifamily manic,
M
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