By guest blogger Jonathan Twombly; President of Two Bridges Asset Management
You’ve taken the plunge into multifamily investing, and you want to maximize your income. So you think it’s all about occupancy and rent growth? Think again! Don’t overlook these three great sources of income for your multifamily property: RUBS, Pet Rent, and Late Fees.
Get RUBbed – You’ll Love It!
RUBS is such a well-used acronym in multifamily that even the pros sometimes forget what it stands for: Residential Utility Billing System. It’s a system owners can implement to recoup some or all of the expenses from utilities and services that tenants don’t pay directly.
Let’s say you own a property without separate water meters for each apartment. A RUBS provider will calculate a chargeback amount for each apartment, based on unit size and the number of tenants living there, and bill the tenants accordingly. A RUBS bill can also be used to pass on the costs of trash collection and pest control. And what’s more, usually you can bill the cost of the RUBS system itself to the tenants!
Extra income is great, but many people overlook RUBS’ other benefit: if you institute it, not only will you collect more revenue, but your utility bills will drop too. The more something costs, the less people use it. So, employing RUBS will hit both your revenue and expense columns in a positive way.
Pet Rent Increases Revenue and Reduces Wear and Tear on Property
Let’s face it, pets damage apartments. But people love their pets, and a no-pets policy could impact your occupancy. The solution is to charge a set amount per month per pet, which places the cost of pet damage where it belongs, with the pet owner.
Like RUBS, pet rent helps both the top and bottom of your operating statement. The revenue side is obvious – every Fluffy and Mopsy now represent an income stream. But it also helps the expense side since pet rent will discourage people from owning too many of those little fur balls, helping to reduce wear and tear, especially on expensive carpets!
Late Fees = Faster Collections
Late fees are an essential tenant management tool; and if you don’t charge them, you should. Don’t look at late fees as a source of revenue – after all, if you are collecting a lot of late fees, it means that your tenants aren’t paying on time. Instead, a good late fee policy will habituate tenants to paying on time and compensate you for the extra time and cost of collecting rent from late remitters.
To work well, a late fee policy must be clear, strictly enforced, and fair. Tenants should know that if their rent is not paid by the deadline, a late charge will result, no matter what. Never waive late fees, or they will become meaningless as a tool for getting rent in on time. And don’t make them too high either – just enough to get a tenant’s attention. You want tenants to pay the fees and the rent, not skip out because they have racked up an unsustainable burden.
Additional Income Powers Your NOI and Your Asset Value
Do you think these additional sources of income aren’t worth the trouble? Well, you should think some more, because they will add substantially to your income and asset value! Imagine you own a 25-unit building and you’ve instituted RUBS and pet rent. (Even if properly done, late fees should be too uncertain to count on; no buyer should ever rely on them when deciding how much to pay for a building.) You’re getting an average of $30 a month per unit from RUBS, and ten tenants pay $20 a month in pet rent. This adds up to $9,000 a year in RUBS (not including the utility savings) and $2,400 a year in pet rent. Not only is this $11,400 in additional net operating income every year; but even at an eight percent cap rate, it’s an extra $142,500 in asset value. That’s real money. Don’t leave it on the table!
About Two Bridges Asset Management: Jonathan Twombly is a former lawyer and current full-time multifamily property real estate investor who runs Two Bridges Asset Management LLC. Two Bridges offers pre-qualified accredited investors the opportunity to invest passively in cash-flowing multifamily properties. For more information and to see if you qualify, please visit twobridgesmgmt.com or email Two Bridges.
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