budgets
A Little Bit of Play Keeps The Madness Away
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?
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
Apartment Budgets: Vacancy Loss
Back for another round of apartment budget discussions. Today we are talking about vacancy loss. Before we do, lets recap in the way of a list of line items we have penned about up to now.
Rental Income
Total Potential Rent
Loss to Lease – Move – Ins
Loss to Lease – Renewals
Total Effective Rent
Vacancy Loss
Let me introduce you to the biggest robber of revenue on the income side of the ledger – vacancy loss. It gets disguised under a number of line items, all seeming innocent in nature. Things like Down Units, Models, Offices and Fitness Centers (if housed in an apartment) get captured in Vacancy Loss. The line item as a total (Total Vacancy Loss) captures 100% of all physically vacant apartments in the way of a negative revenue number no matter the nature. And, it is driven by any number of stimulants.
Apartment Vacancy Drivers
Vacancy is driven by the economy as much as it is by poor or sub par management. If the economy is stalled or sputtering along than vacancy tends to trend higher. If it is booming – think dot-com days – than vacancy is low. If job growth is anemic or trending net negative then vacancy trends higher. If jobs are growing on trees – the vacancy trends lower. If interest rates are low and lending standards are relaxed then vacancy suffers in the hands of home buyers. Interest rates rise and lending standard constrict then vacancy goes lower. Developers and builders take advantage of foreseen demographic trends, low-interest rates and relaxed construction lending standards to build tens of thousands new units and vacancy could suffer to the down side. They stall out for any reason and the inflow of new renters (demand) takes off and you yield to the upside.
Down Apartments
Down units are a Big No in my book. To easy to lose track of. Put an apartment on a down unit status and the next thing you know you are spending 10k to get it back on-line. It gets cannibalized by the service team and left to rot by the management team. Just don’t do it. If it’s considered down – call it a tough turn. And, by all means do not let your service team pick it for parts and pieces.
Bad Management
Likely the biggest contributor to vacancy loss is bad management. From curb to commode, you can add to or take away from the loss to vacancy. From pricing to inventory turn time and ticket turn rates, you can give to or give back vacancy loss. And, from sales to renewal discussions – you can reap or spoil the line item.
Drawing it in
In summary, vacancy loss can wreck a budget inside of one months time. It can also boost your bottom line by many fold if managed well. It’s driven by any number of factors from macro to micro and everything in between. It can be a friend or an enemy.
What are your thoughts – would love to see them in the feedback section below. And, thank you in advance.
Your – fending off vacancy loss – multifamily maniac,
M
Apartment Budgets: Rental Income
The Numbers
It all comes down to the numbers. Be it an operational spend or a big capital spend, it all comes back to a math problem to be considered and or solved. At that and the prompting of one of our accounting team members at Mills Properties, I will be dedicating Tuesday to the numbers.
Walking Through an Apartment Budget Top to Bottom
We are going to take apart one of our budgets by defining each and every line item, one at a time, over the next year or so. Yes, we really have that many line items. The thought is that over time we will, as a group, gain a very deep and thoughtful understanding of the line item definitions, relationships and things that drive each. We will learn tips and strategies to move income and expenses in the right directions.
Speaking Greek
Full admission – numbers are not my favorite part of the multifamily business. I can do it. I understand the relationships. And, I know how to move them in the right directions. But, as much as I try, I am just not the analytic left brain thinker. I am as far from pragmatic and methodical as you can get. I am a right brain thinker, creative in nature and never like to do the same thing the same way twice. Numbers are the work side for me.
I say all that to say this, this will be as much an education for me as it will hopefully be for you. So, comment away. Call me on the carpet when I am off. Add to the conversation when you see fit. Do it under the premise that you will be helping tons of people get a confident understanding of our financial game plans.
Apartment Rental Income
Item of note: I am working from a non-revenue management model.
This is the top line. This is where it all starts. Some call it market rent, others call in the pixie dust sprinklers as the line is really meaningless.
Rental Income can be defined as the maximum rents at 100% occupancy. It’s the number you would collect if every single unit were physically occupied and everyone paid their rent at the full value of the lease.
Where do we derive the number? It really is made up. In all fairness it is predicated on your comps in the market place. We like to think of our comps as the three to five communities that you lose the most leases to. I like to think we make the market and the comps predicate their tops lines accordingly. Whatever the case, it’s a market generated number.
When does it change? It can move down but more often than not it moves up. It is predicated on a good number of factors to include broader things like the economy, jobs and household formations. Or more minutely on the classic supply and demand factors set inside of seasonality. And, it is down on a unit type basis. If you are very highly occupied in a specific unit type then you should raise. If you have tons of inventory with little to no demand – you keep the rents neutral. That last sentence might drive you to think you should lower rent. And, in some management companies that would be a true statement. For us, we leave it in place and compete with concession – which we will discuss in a future post.
What is the fastest way to move this line item up-up-up? By being remarkable.
Perspectives
I have left a number of perpectives out of this post and maybe treaded on others – please keep the discussion going in the comments section below. My accounting friends will love you for it and I will thank you for the education.
Your, digging into apartment budgets, multifamily maniac,
M
