When times are good and your building is full, don’t you wish you could add an extra unit or two to the property? I know I do. But that’s usually impractical, if not impossible to do. So, how else can you increase income at your building? There are two main ways: 1) leveraging your underutilized assets to meet resident needs and 2) supplementing the rent with ancillary income. Below are a few thoughts to maximizing your property’s revenue beyond higher base rent levels.

Rental Premiums:

Do you charge the same rent for all 2 bedroom units with the same floor plan? What if one of them faced the pool or was on the top floor with a vaulted ceiling? Do some have fireplaces and others not? All real estate is unique – even the different apartments within the same community! I can’t count the number of apartment properties I’ve seen that standardize the market rent by floor plan rather than maximize the units’ assets.

Now is the time to segment your building by items that can provide a premium (and by those that might require a discount). Typical variables include:

• Floor level
• View
• Square footage (small one bedroom vs. large one bedroom)
• Exposure
• Proximity to amenities or recreational facilities
• Age of features such as carpeting and appliances.

The first step is to create a rental schedule from the bottom up (starting with the base rent for a particular plan and adding $10 here and $15 there for each variable feature). Do the same concept from the top down (starting with the highest rent you think you could obtain for your premium ‘top-of-the-line’ apartment and then subtract amenities feature by feature). You might get different numbers. Choose the ones that seem most realistic.

Also be alert to perceived value from your clientele. We have some properties where the bottom floor is the most desirable (there is less turnover) and others where the top floor is the most desirable. Review your property’s history. Do certain units have more turnover? Others less? Try to find out why. It could easily mean an additional $50 in premium on those apartments.

Go a La Carte (unbundling):

Years ago, restaurants came across an idea which significantly boosted their bottom line. Rather than including the salad or some of the side dishes with the main course, they started selling them separately. Bear in mind, they didn’t reduce the price of their main dish. They merely created a source of pure profit by segmenting out the side dish. In the same way, you might be offering items such as a parking that you assume must be given as part of the rent. They do not have to be part of the rent unless you decide to make them so. We have successfully charged extra for parking at every single building where we have tried it.

Most tenants, when apartment shopping, are in the habit of comparing base rent to base rent. It does you no good to increase rental rates and incorporate all your services if prospects are not taking this into consideration in their review of your community. Does your property have garages? Do you have extra closets in the halls that are not being used? Secured storage makes your property more desirable. You can create storage out of practically any usable area. Not only will storage space be increased income to you, your tenants are less likely to move (because they have too much junk to haul away).

Laundry:

Whether you lease from a service or own the machines outright, this is probably the most traditional source of extra income. Have you looked at what you charge lately for this service? Are your machines capable of variable pricing – where the cost is higher on weekends rather than during the week? If you have washer dryer hookups in your apartments, you might consider leasing the machines to your residents as an additional upgrade charge rather than just leaving them there in the apartment.

Late Fees:

In California you are limited to charging fees that are a reflection of your actual cost of the breach to you. Fees may not be used as a penalty. In calculating these fees, most owners do not fully take into account their time and staff time related to processing and serving late notices and other notices related to breaches of the lease. You probably already charge a late fee. But does your lease contain a 3-Day Notice fee? Think about the constant chasing down of those few tenants who pay at the last minute.

Other Fee revenue you may charge include:

• Lease Termination Fees
• Application Fees
• Short Term Lease Premiums

Again, the principal is that the fees help offset your costs of dealing with the related issue. Most owners underestimate the myriad costs in handling applications (your time on the phone checking references, etc.) and the risk (taking on re-renting risk with lease termination fees) and can use this additional income as a way of offsetting their operating costs. Make sure your lease has a clause relating to how money received is allocated so that the next rent payment first goes to recovering those fees and the balance to rent – or you will have a hard time collecting.

Pet Fees:

If you’re going to allow pets in your units, you might as well earn additional income from that. It surprises me still how many buildings do not allow pets – or that have a pet policy that is totally unrelated to the issues certain types or breeds of pet cause (a small barking Chihuahua can be a much bigger issue than a large Golden Retriever). We charge both an additional security deposit for the pet and a monthly pet fee.

Think about what an additional $50 per month extra pet rent does to the economics of a 20 unit building. That’s potentially an additional $12,000 extra income from pets alone! For an occasional damaged carpet (which can be deducted from the security deposit), I’d take the extra income any day! Pet owners also tend to stay longer, perhaps because they are limited in their options. If you are not allowing pets already, I strongly encourage you to consider this option.

Utility Reimbursement:

Another source of revenue is passing through to residents their utility usage. Many companies have jumped on this bandwagon due to the fact that water and sewer bills have risen dramatically over the past decade and remain difficult to control. In addition, we have found that most people who conserve on utilities are the ones who pay the bills. Having your resident receive a monthly bill helps keep their utility usage lower. You’ll find out about leaks much quicker – I promise!

There are basically two ways to reallocate utility cost back to your residents. The first is through submetering. Many apartments, however, cannot be metered due to plumbing constraints.  You will need to investigate whether or not this is viable for your property.

In cases where submetering is uneconomical, many owners have implemented a general allocation program, also known as a Ratio Utility Billing Service (or RUBS). General allocation programs use the property’s water bill and, through a series of calculations (based on occupancy, square footage, and other metrics), determine each resident’s portion of the bill. If you are under rent control, you will need to investigate what you can and cannot charge for when it comes to utility reallocation bill-backs. Most tenants understand that utilities are a cost center. With the drought in its fourth year, billing back for water use is accepted by many. 

Upgrade Packages:

You can offer custom items in your apartments and package them together for increased rent. For example, offer to paint an accent wall as well as upgrade the lighting fixtures and hardware in the apartment for an additional monthly fee. You can offer several different packages. Many residents will be willing to pay for the customizing options, and you will usually get your money back in the first year or two. After that, it is pure profit. We find residents that customize their apartments tend to stay longer. And, for the few that move early, you have an upgraded apartment that you can re-rent at a premium! 

Less Common Sources:

Other income is only limited by your creativity. Some less common ways of generating income could include investigating whether a cell phone company would want to install a cell tower on your property and pay you a monthly rent. You might convert unused basement space into storage lockers or a rentable wine cellar. You might be able to generate fees by offering preferred access, such as to a cable company, to your residents. Advertising space can also be sold. This is only limited by your creativity. The key is not to have residents feel like you are ‘nickel and dime-ing’ them for every amenity, but rather that you are offering extras, at a fee, for those who want to take advantage of them.

Success with your ancillary income program depends on knowing the desires of your residents. Success with any program comes down to tailoring programs appropriate to your residents and thinking creatively about how to leverage underutilized community spaces or otherwise tap into an underserved resident need.