apartment budgeting
Apartment NSF Fees
Apartment Budget Installment
NSF or Non-Sufficient Funds Fees are not uncommon thing in the world today. In fact they have been around for a very long bit of time. Simply defined, it is a fee for a returned check be it paid by electronic or paper method.
NSF Amounts
The amount can be anything within reason. I have seen them range from $25 to $125 depending on average rent rates, markets and sub-market primers.
Reason for NSF
The chief reason in my head is to shape behavior. Not to penalize. Suffice it to say – if a resident has to add $125+/- to their rent check, they will likely not do it twice. It will likely feel like an excessive amount and thus a penalty but it will shape the behavior you are after.
How to Budget for NSF Fees
Where you have trailing historical numbers, you can simply take a 12 month trailing average and plug that number for the forward-looking 12 months. Where you have no information, you can look for like kind assets in the market do per unit comparisons to come up with your averages [something I will define with more detail in future articles].
I leave it at that this week. NSF Fees are fairly straight forward but I have left some nuggets out in hopes that we pick them up in the comments.
Publicly Calling Out
Speaking of – I am going to reduce to a lower means of influencing by publicly calling out a member of our accounting team. I will only identify her as CK for now and I hope that she joins the conversation at some point as it was her idea to get the budget series started.
Your enjoying the weather today multifamily maniac,
M
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Apartment Late Fees
Apartment late fees are applied to a resident’s account if they pay rent beyond a pre-defined grace period. Generally grace periods do not extend beyond the first five days of any given month. And, apartment late fees are generally levied in an amount calculated as a percentage of the base rent and or as a flat fee.
Due on First Late on Second
Now technically rent is always due on the first of any given month. Despite what your grace period is rent is due on the first of the month and late on the second. That does not mean that you are applying your late fee but it does mean that rent collection procedures should be in motion on the second day of every month. You are building habits here and this is a good one to master.
A Word On Grace
I am a strong advocate for doing away with grace periods all together. I have never understood the appeal to use them. To me, it suggests that it is okay to pay late . Why would you do such a disservice to your respective business? Moreover, you have entered a binding contract and have agreed to provide some level of value in exchange for the monthly payment that will be made to you. So, in my head, you should ask for it on the first. And, define it as late on the second whereby you apply late fees.
Apartment Late Fees
I have seen several variations of late fee calculations. Presupposing rent is due on the first and late fees apply on the fourth – here are a few examples:
1. $50 on the fourth and $5 per day every day after until it is paid in full
2. $75 on the fourth. Another $75 on the tenth.
3. 10% on the fourth and $5 per day every day after until it is paid in full
That is just to name a few – there are very obviously hundreds of computations out there. The main point with penalties is behavior modification. Make the pain certain enough and people will very likely deviate away from it. Make it marginal and people will take advantage of it. Remember – for most of you there is a mortgage that has to be sufficed each month.
Your – advocating for no grace period – multifamily maniac,
M
Pic prop: flickr
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Apartment Budgeting – Application Fees
There are a generous number of other income items you can account for in an apartment budget. Other income also known as ancillary income is an opportunity to add value in the way of services that are above and beyond rent monies. From application fees to cable income to utility recovery, the chances to collect additional revenues are plentiful.
Application Fees
Application fees are typically charged per applicant and or one fee per married couple. More times than not it is determined by comparing and contrasting rates charged by comps in your respective markets. In my experience, I have seen these rates range from $30 to $50 per application. The fee is collected to offset the cost of doing credit and criminal background checks. And, it is collected at the time the application is submitted for processing. The fee is typically non-refundable but is sometimes waived if the application is approved with no conditions. In the latter case, it is considered a marketing cost and or a cost of doing business.
You can discern some down and dirty information using the application fee amount in a given month. You can take the total application fees collected in a given month and divide it by the amount charged for an application and compare that number to the number of leases taken and or number of move ins for the month. It’s a back of the napkin way of making sure you have collected a fee for every lease or every move in. Any margin of error should show up in a concession or other concession line item.
Application Fees – Money Orders
There is a downside to collecting application fees. Over the years, I have seen it more times than I would like to admit. On-site team members take blank money orders, fill them out in their own names and cash them. They attempt to get away with it by writing the amount off to a concession or other concession. Just something to be aware of.
Your – always looking for ways to maximize value – multifamily maniac,
M
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Employee Rent Concessions
This week we are rounding out our budget concession discussion with the topic of employee concessions. People are the difference that make a difference in property management. I would argue that it is not location location location but rather people people people that make or break the present and future value of an asset. You can have the best location on planet earth with the worst people and you are guaranteed sub-par valuation. Relocate that asset to a B+ location and team it with A+ characters and you will have yourself a winner. It really is all about the people. And, employee rent concessions are one way of saying thank you.
Value in Responsive Service
Beyond the concept of reward, concessions can be looked at as incentive for an employee to live on-site. There are clear advantages to owners when an employee lives on-site. It lends well to responsive customer service, especially if that employee works on the service side. As an example, if you have an A/C go out after hours, he/she can provide rapid and responsive service. If you provide lock-out services; the idea of rapid response is a real plus. In the event of a major crisis, employees living on-site can act as first responders in the way of organize and deploying crisis management protocols.
Things to Think About
I have seen this amount vary over the years and is certainly subject to ownership or property management protocols. It typically ranges from 15% to 100% and is credited monthly over the course of a lease term. It also typically carries a caveat in the way of an employee addendum that spells out strict concession payback and move-out protocols if the work relationship turns sour.
The biggest thing to consider is IRS implications. Always consult a good tax attorney when thinking about giving away money as I am certain our great Uncle will want his part.
Your – advocate of employee rent concessions – multifamily manic,
M
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Student Concession
We are continuing our budget discussion this week with another short and sweet concession entry. Student concessions are used to attract those who are pursuing advanced educational opportunities at schools or institutions around your apartment community. This is a way that apartment operators can both attract and retain students in addition to giving them cause to talk about you. It’s all marketing all the time.
Concessions or Discounts
As an item of clarity – a concession is not a discount and a discount is not a concession. Both impact the bottom line but one lives on while the other has a one time impact. Student concessions are typically given up front at the beginning of the lease and or at the time of renewal. They are considered a one time event whereas a student discount is some that lives on over the life of the lease. Example of a concession might be: $200 off of your June rent if you move in by June 10.
A student discount on the other hand is a rent reduction from the market rent over the course of the lease. Example: you give a 5% or flat dollar amount discount off the market rent rate for the term of the lease that you sign if you move in by June 10. Both have an impact on the bottom line and both have a potential opportunity for you in the way of marketing.
Your – continuing the budget journey – multifamily manic,
M