All About Ancillary Income – Budget Edition
Ancillary income, as it relates to multi-family housing, is revenue generated from necessities and value-added services offered to residents. This income category is designed to increase opportunities and can range in diversity across markets. Ancillary income should be accounted for when projecting budget numbers for the next fiscal period, typically year over year. Below we will take a closer look at the top sources of ancillary income often analyzed during budget season.
It is not uncommon for telecommunication services to be a part of ancillary income in multi-family communities. Opportunities for additional income can come from wireless internet, cable, or satellite services being billed back to resident for both common area and/or private usage. If a flat fee is charged based on occupancy for either value, it’s important to forecast occupancy and inflate the service cost by an average of 3% to adjust for inflation. Communities can also opt to bill back common area expenses realized through community televisions, internet services, and office operations. Once the total dollar amount adjusted for inflation for common area expenses is generated, divide the total by average projected occupancy in units to get the per unit projected income opportunity.
Laundry and Vending Services
Laundry and vending services also can create opportunity for additional income. Vending services commonly selected by multi-family properties are drink machines, snack machines, and machines that house healthy meal options. Laundry services commonly utilized are laundry rooms, dry cleaning services, and wash and fold services. Laundry rooms are typically in a centralized location and residents can access them outside regular business hours. This allows a longer time window for income to be generated and adds valued convenience to the residents.
Sub-metering services, otherwise known as “RUBS” income, is a service that will read water usage for each individual unit and report it to the water billing vendor, so it prints on the rent bill each month. Another aspect of this is an administrative billing fee for this reading and service to be done. In some cases, where submetering is not present, there is an occupancy and total building usage equation that can be used. It is important to understand which method is used prior to forecasting the budget. Utility increases are typically 3-5% year over year which can be obtained from local utility companies or your submetering billing provider.
Another source of utility income can be realized through rebate programs on energy savings energy saving rebates after completing an LED retrofit project on an asset. Utility billing companies can also cross reference current occupancy in comparison with generated utility charges for electricity. This will show if a resident has the electricity set up in the landlord’s name in which the charges would be billed back to the resident. On a vacant unit the property management company would assume this bill as it is in their possession. An additional fee for these bill-backs can be applied in many cases generating a bill-back fee and an actual submeter electricity expense.
Community Rental and Service Options
Properties may offer additional value-added services such as fitness-on-demand, personal training, and dog walking, to name a few. Another area of opportunity exists in the requirement of renter’s insurance and associated penalties for lapses in coverage. Parking can also generate additional income through options such as reserved parking, covered parking, or private garages. In addition, valet services, car washing services, and additional parking spaces can generate additional income for the property.
In addition to parking, storage is an income opportunity for communities who can accommodate designated storage areas. Storage closets can be rented out and incur additional monthly income for communities. This value-added benefit offers convenience to residents and opportunity to investors. The funds realized through storage income can be forecasted by analyzing historical storage unit occupancy and multiplying it by the monthly dollar amount charged per storage space. Adjust for inflation or any forecasted increase in storage fees charged on new leases and renewals for further accuracy.
Ancillary income categories should be reflected on the income portion of the budget and forecasted each year. Analyzing year-over-year income opportunities on storage, parking, along with utility trends can help draft an accurate budget. It is important to account for any potential service expense increases the property will incur for ancillary services. Accounting for these expenses helps quantify the profitability between ancillary income and expenses.
What areas of ancillary income are applicable to your community budget this year? Are there any you would like to add? Buyers Access® can connect members with service providers in these categories to help facilitate mutually beneficial partnerships while offering competitive pricing. Contact your account manager to learn how you can add ancillary income to your budget next year. Not a member yet? Contact email@example.com or call us at 1-877-541-2192 for information about how you can tap into the exclusive resources and opportunities so many existing Buyers Access® clients enjoy.