In thinking about providing renter’s insurance as we talked about in last week’s blog, many multifamily communities may turn to providing a group policy for their community. This and other types of multifamily ancillary income are always hot topics but today we are going to talk about how to make it work for your community.
What is multifamily ancillary income?
First we need to start by defining what is multifamily ancillary income. In general, ancillary income refers to any other fee based services that your community can provide to residents that would generate income outside of the monthly lease payment. While this is a very simplified definition, it is easily understood so we may continue on.
Why is multifamily ancillary income important?
So often, in multifamily, we focus on increasing revenues through the lease costs but neglect to realize how fast ancillary income can raise the bottom line. While a $5 fee may not look like a ton of money, if you figure that fee X 250 residents X 12 months per year you end up at $15,000. This number, however, IS significant! Don’t ever write off even tiny fees as they can add up to a larger whole sum benefitting your community’s budget. This makes ancillary incomes important in the grand scheme of profits inside multifamily.
Ancillary income is NOT the devil!
Not always. It’s all about marketing! We all know about suggestive selling and the basics of marketing to our residents, but ancillary income sources don’t need to be viewed negatively. They can be seen as beneficial services to your residents which are positive in nature and turn your residents into fans. As long as you keep in mind that the goal of any multifamily community is resident satisfaction, you can depict ancillary income in a positive light. As long as the ancillary income is a fee for a service valued by your residents, they will not feel “nickel and dimed”.
Is classification a consideration for multifamily ancillary income?
Of course, classification is a consideration! When deciding on any change in your multifamily community you must always consider WHO your residents are. While you may think that it will be easier to sell ancillary income services to a Class A property that may not always be true. If you can provide a bulk discount to your residents for these services communities in Class B and C properties may actually have the upper hand!
For example: Cable, Phone, Internet Bundles can be one of the highest ticket “utilities” for any resident. Let’s say that a local provider offers this bundle to single family homes for $250 per month total. If your community is able to bring them 250 clients at one time they may be willing to cut that fee in by 30-50%. When selling that same bundle to future residents, imagine that it cannot possibly be hard to market a necessary service, at a significant discount, to future residents. It’s a win-win for all involved. Let’s say that in your community of 250 people maybe only 100 of them would have signed up for all 3 services because of the cost. Now, the provider has a blanket of service, the residents receive a discount, and your community gets, arbitrary numbers, 5% of that profit.
$375,000 a year in sales total
$356,250 a year to the cable company in less than 1 square mile
$18,750 a year in multifamily ancillary income
$3000 savings per year to each residents
EVERYONE WINS and therefore it should be an easy sell!
Ideas for sources to add multifamily ancillary income
From the NAAEDU Conference 2017 here are a listing of the top 20 sources of multifamily ancillary income from an Entrata sample of 2.6 million+ apartment units:
- A few frequently overlooked possibilities for ancillary income include:
- Unit Upgrades
- Common Area Maintenance Fees
- Tax Fees
- Fees such as late payment, trash, early lease termination,
- Parking fees for un-used/additional spaces, carports, garages.
- Concierge Services
- Pet Services
Just because they can take advantage of the service outside your multifamily community doesn’t mean that your residents would not utilize (and appreciate) on site services.
For example: If you are in a pet friendly community, consider having a dog walking service or a dog wash facility. You could charge nominal fees for each of these and boost your ancillary incomes while providing a value added service to your residents who no longer have to leave their community to find these options.
Double up unit upgrades as ancillary income.
As the multifamily industry continues to shift toward “smart homes” it may be possible to do “double duty” by turning upgrades (which will be necessary in coming years) into ancillary income immediately. The NAA says there may be revenue opportunities available through resident home-automation devices and more!
It’s time to take a good look at the amenities and services your multifamily community is providing and allow the community residents to tell YOU what ancillary incomes you could capitalize on!