budgeting
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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Apartment Lease Termination Fees
It’s time for another installment of our series on apartment budgeting. Today we are tackling the top of apartment lease termination fees.
Lease Termination Fees Defined
What are lease termination fees? The fee is applied if a current resident decides to break their existing lease contract prior to the lease end date. I have seen the fee vary in amounts – some as low as one months rent and others as high and two and one half times the amount of the monthly rent.
Budget Strategy
The apartment lease termination fee is a line item that you can simply use history to forecast forward. If you collected three of these fees last year, it is fair to say that you might do the same in the coming year. Or, if you have more history to pull from then do so. If you have three to five years of history, go back and consider the number of fees you collected over that time and simply average it out.
Once you have determined the number you have collected, space them out over the course of the year. Feel free to pick your months at random as there is no absolute way to predict when someone might need to break their lease.
Charge and Beware
This is likely the second most contested apartment related fee standing close behind late fees. A quick search yielded more than a few Q&A sites that advised everything from – pay it to challenge it.
The fee is perfect legal and it is agreed to at the time of the lease signing so feel compelled to stand your ground.
Your lovin’ other income multifamily manic,
M
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Apartment Budgeting: Forfeited Security Deposit
Mike Brewer · · 1 Comment
Hope your Tuesday is off to a good start. I am still in the vein of Other Income as I venture through these budget installments.
Forfeited Security Deposit
Defined: A fee taken when an applicant fails to follow through with physically moving into your community after they have been fully qualified to do so.
***As a note of clarity: the security deposit in the refundable portion of the deposit collected at the time you collect a signed application.
The justification for charging and collecting this fee is that you and your team have spent time and resource getting an application processed. That is to include completing the application, running credit and criminal background checks and calling the applicant to let them know that they are qualified.
If you do all of that only to have the applicant call you at the last-minute to cancel, you should be paid for your time. That is what the forfeiture of security deposit covers.
How much?
This various by market and sub-market and in some cases is governed by state and local laws so be sure to do your research.
For reference fees in the St. Louis Apartment Market range anywhere from $150 to $500 with extremes on either side.
Lease Application
Make absolutely certain that you clearly define this practice and the amounts you charge for it in your lease contract. Void of the language, you will have a tough time collecting on it. Make sure the language is in concert with the laws that govern such things in your respective markets. And, don’t be shy about collecting it. No matter how customer-centric you are – you don’t work for free.
That is it for this week – I have left some nuggets out of the conversation on the outside chance that we get some comments. So, let us know what you think if you have a free moment today.
Your lovin’ the budget series multifamily maniac,
M
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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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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