Beyond the Rent: Uncovering Hidden Income Opportunities in Multi-family Properties

When underwriting a new multi-family purchase are you including all income sources?

Rent is obvious.

But, there are many more sources of income.

Don’t forget to include the following:

-Late fees

-Pet fees

-Laundry

-Garage rentals

-Reserved parking spots

-Community center Rentals

-Fitness center rentals

Some of the above items may be included in your rent.

But, many will be extra fees.

Every multi-family project is different. A single, tall building will have different amenities and income opportunities than a garden-style complex.

**

Some of the fees are not feasible. For example, a pet fee in low-income housing may not work. Whereas, tenants in luxury rentals understand that pets cause extra wear and tear and will pay a pet fee.

There is no right or wrong answer for which amenities to charge extra and which to include in the rent.

But, here is a good rule-of-thumb.

The included utilities compared to rent is often a ‘U’ shaped relationship.

For a great illustration of this phenomenon, consider hotels.

When you stay in a basic $100/night motel, they do not typically have items available such as shaving cream and toothbrushes.

When you stay at a mid-range hotel, they will often provide personal items that you’ve forgotten (shaving cream and toothbrushes) for free.

When you stay at a higher-end hotel, they will often have a well-displayed shop where you can purchase personal items, such as shaving cream and toothbrushes.

**

For some of the income opportunities, help is available.

For example, you do not need to calculate laundry income alone. There are many companies that will provide and maintain all equipment for a laundry room. Some will even collect the monies and do a profit-split with the owner.

These companies have a wealth of experience regarding expected income. You can use this for your pro-forma.

Market rates help determine rents. They are rather objective.

However, extra income sources are mostly subjective. If you are not comfortable estimating them, it is best to leave them off your pro-forma. If you can cash-flow well without them, it will be a bonus.

That is better than over-estimating the income and relying on it to meet your income requirements.

**

However you approach these income sources, be creative. There are so many opportunities available to you.

Happy Investing!