SS257: Maximizing Multifamily Profits Beyond the Rent Check

SS257: Maximizing Multifamily Profits Beyond the Rent Check

Many multifamily investors consider rent payments as their only source of revenue. However, savvy rental property investors implement additional income streams in order to maximize their profits. In this episode, Charles discusses some of these strategies and how investors can implement them at their properties.

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Talking Points:

  • In addition to collecting a monthly rent check, there are a number of different ways for multifamily investors to generate additional income. The beauty of most of these ancillary income ideas is that the revenue generated from them has a much higher profit margin compared to the profit margin on the rental aspect of the property alone.
    • Fees:
      • Application Fees. Some managers like to make application fees a profit center; I personally do not, since a high application fee is kind of like a junk fee that cannot be avoided. Our goal is to rent out units; we want as many good tenants as possible to apply. We price the application fee to cover our cost for the background service, in addition to the estimated cost for our staff to actually process the application.
      • Late Fees. A penalty for late rent payments that encourages tenants to pay rent on time.
      • Early Termination Fees. If someone breaks their lease. It also offers a cleaner way for someone to leave early, compared to a tenant who simply says they are leaving, and now you have to figure out a solution. Charging 1-2 months’ rent is typical.
      • Other Fees. We do not charge these, but you can, and they would include lease renewal fees and move-in/move-out fees.
    • Rental Services:
      • Pet Fees and Pet Rent. Charging an upfront pet fee and a monthly pet rent fee for tenants with pets. A great way to make additional income, but make sure to save some of these fees to put towards make-ready fees once the tenant moves out.
      • Renters Insurance. Partner with an insurance company to offer your tenants renters’ insurance. Always require your tenants to have renters’ insurance, especially if they have a pet.
      • Storage Units. Renting out storage units to tenants.
      • Parking. Charge for specialty, reserved, premium, or electric vehicle parking and charging. If there is covered parking or a garage, these can also be a great income source. When I owned properties with garages, we made more money renting garages to non-tenants than we did to tenants.
      • Package Lockers. You can charge for package lockers, but I believe it minimizes many issues with missing packages. Therefore, I would not charge for it, as issues with missing packages would ultimately be a burden on the property manager in trying to resolve them. 
      • Short-Term Rentals. Offering short-term rentals at your property. You should check with your lender and insurance company before proceeding, but it can be a valuable additional source of revenue.
      • Valet Trash Services. Charge tenants a fee for having their trash collected at their door, typically twice a week.
      • Laundry/Cleaning Services. Charge tenants for apartment cleaning or valet laundry services.
      • Laundry Room. If not, every tenant has in-unit washers and dryers; an on-site laundry room might assist your tenants while also generating additional cash flow. Be careful, whoever the next owner may be; laundry contracts will carry over to the next owner if you sell the property. Therefore, if your contract with the laundry firm is unfavorable, it may slightly devalue your property.
    • Utilities
      • RUBS (Ratio Utility Billing System). You can bill back utility services to the tenants that are paid by the property owner. You need to be very careful not to overcharge, charging only the actual cost paid. Typically, this is done with older buildings that lack individual water meters for each unit. In 2 weeks, I will have an episode on RUBS coming out, SS259.
      • Wi-Fi / Internet Packages. The Internet is definitely one of the best ways to generate additional income. We recently did this at a property, and I believe our cost for 1+ Gig high-speed fiber is around $20-$25 per month. It is a premium service that every tenant will use, which you can now offer to them for much less than what they would traditionally pay themselves.
    • Value-Add Services
      • Vending Machines and ATMs. Usually, these do not cost the property owner anything, and the provider will simply split profits with you.
      • On-Site Retail. Does your property have unused space that you can legally convert into a retail unit and rent out?
      • Advertising. Local businesses may want to advertise to your residents and pay you a fee. It could be a win-win-win if you accept a lower fee for advertising, and if the merchant offers an exclusive deal to your tenants.
      • Club House Rentals. Is there a common area that can be rented out for events?
  • A rental property that incorporates some ancillary income ideas with a well-run property will not only increase its income but also increase its tenant retention. Just don’t get too aggressive in charging for services that many tenants would consider should be included in their rent, such as access to the gym or pool.
  • If you are interested in learning some tactics for finding tenants, you can check out episode SS216.

Transcript:

Charles:
What if I told you that rent checks are only the beginning of your multi-family profits? Welcome to Strategy Saturday. I’m Charles Carillo and today we’re discussing maximizing multi-family profits beyond the rent check, monthly rent checks, pay your mortgage, but these income streams can take your cashflow to the next level. So let’s get started. In addition to collecting a monthly rent check, there are a number of different ways for multifamily investors to generate additional income. And the beauty of most of these ancillary income ideas is that the revenue generate from them has a much higher profit margin compared to the profit margin on the rental aspect of your property of loan. So let’s talk about the first one, which is fees. Now, application fees. Some managers like to make application fees. A profit center, I personally do not since a high application fee is kind of like a junk fee that cannot be avoided.

Charles:
You know, our goal is to rent out units and we want as many good tenants to apply as possible and we price the application fee to cover the cost for the background check service in addition to the estimated cost for our staff to actually process the application. However, late fees on the other hand is a penalty for late rent payments and that encourages tenants to pay rent on time. If you don’t have a late fee, they’re gonna put you at the back of the blind When it comes to creditors to pay, we don’t want that. And if they do that, we want to be compensated for that. Early termination fees, early termination fees if someone breaks their lease. And it’s something that I never really put into my leases until I moved down to Florida and started investing in Florida and I realized what was going on down here.

Charles:
And a lot of the leases had these early termination fees, which weren’t as common in the northeast at that time. And it also offers a cleaner way for someone to leave early compared to a tenant who simply says they’re leaving. And now you have to figure out a solution. And charging one to two months rent is typical. I probably would charge two months for this because there’s a lot of hassle involved with it. So one month you’re gonna lose immediately for like cleaning up the unit and renting it out. It probably might go over a little bit over that one month and you wanna keep some of that. Second month is actually gonna be some of the profit if you are able to get a rent it within that one month window. Now this is one thing that makes it cleaner in the sense of like, there’s no, when they contact you as the landlord, as a property manager, hey, what happens?

Charles:
I wanna leave. And there’s not really a clean way of doing it. There’s nothing written down. So now you’re going back and you start negotiating. It’s different if it’s like, hey, check page 12 of your lease. And it says there, it’s a two months of your rent for early termination. And at that point then what you’re able to do is you’re able to clearly tell this to your to your tenant and they can, you guys can move on from there. There’s not like a new negotiation and agreement that has to go on and they might just ghost you and leave. And I’d rather try to get those two months than try to collect the other six months or something of the lease that you’re never gonna get. It’s easier just to say, just pay me one time termination fee and you can move other fees.

Charles:
We do not charge these fees, but you can. And they would include like lease renewal fees. We wanna keep tenants in there so we’re not gonna charge ’em any type of fees on renewal. Move in, move out fees. It’s something else you can charge. Maybe if it’s the unit or your complex requires management to assist, this is something that you might be able to charge for. Next section is rental services. So pet fees and pet rent, no charging an upfront pet fee and a monthly pet rent fee for tenants with pets. And it’s a great way to make additional income, but make sure you save some of these fees to put towards make ready fees once the tenant moves out because there’s gonna be more wear and tear on the unit if there’s a pet, no matter how big or small or lovable the pet is that that tenants tells you, there’s going to be more make ready required.

Charles:
So keep, don’t spend it all. Keep portion of it in your make ready funds in your savings so that you can use this for the unit when the person actually moves out Renter’s insurance. So if you partner with an insurance company to offer your tenants, renter’s insurance always require your tenants to have renter’s insurance, especially if they have a pet, okay? And the thing though is that you’ll see this a lot with storage complexes, okay? Not so much apartment complex I lived in, I don’t think they really had a deal with rented insurance. You could just go online and get in, you know, a hundred bucks or 200 bucks a year, whatever it was. But storage complexes self storage unit they do this really well. So you rent the place for a hundred dollars a month and then they say, oh, you know, you know, if you don’t have, you know, if you don’t have insurance or anything like this, we can do it.

Charles:
And it’s 1195 a month and let’s be honest, like, you know, when you look at that, what it covers and there’s deductible and all this other stuff that goes with it, I mean they’re getting a nice percentage outta that for providing that service to them and they don’t even, they get the big commission on it because they’re actually selling it. But there’s very little risk for the you know, for the actual insurance company. That’s why they’re gonna give out such a nice commission to the storage complex, but they do it really well and that’s something you can offer to your tenants. Okay, moving forward with storage units. So renting out storage units to tenants. So this is one way I’ve done this before. Not really storage units per se in some of the properties I’ve owned, but we’ve done like a lot of garages when I started investing in properties, they would have a lot of the older houses I had had garages and we’d subdivide ’em and we’d rent them.

Charles:
They could be storage units, but we only allowed people to put cars in them. It was easier to evict them as my property manager would say, so that if they didn’t pay, but it was easy to rent them out. And you know, that was one thing too is we always got more money renting garages to people that weren’t tenants versus people that were tenants because the people that were tenants, they would try to always nickel and dime and try to get down. So we kind of stopped just offering it and we would just rent it without their knowledge. We never put a sign up or anything like that. You know, you put it online and they would go very quickly, especially during, if you’re in anywhere with cold weather, those things rent out ’cause people will keep their stuff in their cars in there.

Charles:
There are specialty cars for the winter for sure, but also if you’re in like a little bit of a city area and they might want something that’s a little, a little safer than leaving in their driveway if they already have other cars it’s gonna be a huge pull and you never have an issue with pullback on those. And you can rent garages, I mean in hours, not even days. I mean they rent out very quickly parking. So charge for specialty reserve premium or electric vehicle parking and charging if there’s covered parking or a garage. These can also be great income sources that we kind of always talked about. And when I own properties with garages, you know, they did really well. And you could also take other room that you had in your property and you could break that up into storage as well.

Charles:
So creating storage units which could be, it might take more work than it’s really worth, but if you have extra room or you have some locker somewhere or extra rooms that maybe were closets before somewhere on the property, yes, you could put those into storage units and rent those out with storage units or stuff inside the property. I probably wanna rent that only to tenants if it’s outside the property, it’s not really connected to the property. Like I said, garages, that might be something that I’m only gonna or really kind of push to people that aren’t tenants, but I don’t want people inside the property inside locked doors that aren’t tenants there because now it’s not just renting a garage or storage unit. If they have a need access to inside of the property, now I have to go through a whole background check because now there’s gonna be more interaction with other tenants and it’s not just like dropping off their car and leaving their car.

Charles:
Also make sure if they have these garage like type things that you’re not giving them, like electricity, I don’t want them turning your garage or rental that’s really just a storage unit into a garage. And also put that into the lease that they can’t do work at the property. If they wanna do work on their car, they have to take that car offsite and they return it as it’s running again. You know what I mean? We’re not running some sort of like garage, something like that. And it’s also cleans up your property. But also somebody can get hurt underneath a car, fixing a car, all these type of things. And also if they’re doing it in the garage, they might do it in front of the garage. And now if you have really tight parking, that’s gonna make some of your tenants mad. So we’re trying to increase income without kind of making anybody else upset that’s at the property.

Charles:
Another thing I found is package lockers. So you can charge for package lockers, but I believe and minimize many issues with missing packages, therefore I would not really charge for it as issues with missing packages ultimately are going to be the burden on the property manager and trying to resolve them. So you have a property, you know, and you have an onsite property manager, let’s just say. Or even if you have offsite property manager and packages are disappearing, that property manager is trying to keep tenants happy and they’re trying to rent new units. They’re trying to like, you know, minimize vacancies you have and that’s what their real job is. And now you have tenants coming to them and saying, my package was stolen, my package that it was delivered my, and now they’re like really being someone that’s really handling all these packages.

Charles:
It’s maybe easier to have a package locker system where people can put their packages in there and then that way it allows them to safely receive packages. Other thing too is with a lot of these different services, they might use a third party offsite package locker. So you put something in your lease that says we have no knowledge of it. That’s something also we have no control and we don’t guarantee packages or anything like this. We suggest you use one of these package lockers, so like Amazon has ’em all over. So get your package delivered there if you don’t have room at our property for your packages, and that would be something that you would put as well in like your cover sheet of the lease. You know, here’s where the rent’s due. If you issue call here, this is how you pay rent.

Charles:
And then just letting you know, trash day is on this day and then packages are a hundred percent. You know, they’re all on the tenant. You know, the landlord has nothing to do with any packages. If they’re stolen, if they’re missing, we cannot help you. And let them know that immediately and maybe show them, hey, there’s packages, lockers here if you get your Amazon stuff, have ’em delivered here and don’t have ’em delivered to the property because we can’t guarantee if there’s any type of problem and we can’t help you at all. Okay, short-term rentals. So offering short-term rentals at your property, you need to check with your lender and insurance company before proceeding, but it can be a valuable additional source of revenue. I think like 2018, we had a property in Phoenix, Arizona and we, it was on a bridge loan initially, so it wasn’t like a, the, the, the lender didn’t really care how we were making money on the property per se, if it was short-term or long-term rentals.

Charles:
And so we were using short-term rental, we had short-term rentals in there and maybe I wanna say maybe like 10 units. It was like 98 unit building or something, and like 10 units or 15 units of the property were actually short-term rentals and it was very profitable, right? So what we did was that the problem was that when we refinanced it into a government, I think it was Fannie Mae financing, we had to get rid of those. So it kind of killed our cash flow a little bit, but it shored up and it like instead of floating rate debt, it gave us some solid fixed rate financing. We ended up selling it afterwards. But it was one of those things where having you know, having those short term rentals, if your lender is fine with it and if you have the demand and you have someone that can help manage ’em like an onsite manager, which we had makes everything run smoothly and you can, you know, really be a valuable source of additional income.

Charles:
Another thing when I’ve lived in apartments before, one time at last apartment I lived in was Valley Trash Services charge tenants a fee for having their trash collected at the door, typically twice a week. Laundry cleaning services charge tenants for apartment cleaning or for valet laundry services. So if someone doesn’t wanna do laundry they can have their laundry picked up, they can leave a bag in front of their unit, it gets picked up and it gets dropped off again. You can usually negotiate a better deal with these surfaces and also get a cut of that because they’re coming and they’re picking up, you know, 10 units at a time, not just driving one place for one and they’re dropping off 10 units at a time. Usually you can get a little bit of a better thing there. If they don’t partner with any other laundry services, they’ll pay if laundry room.

Charles:
So if not every tenant has in unit washers and dryers and onsite laundry room might assist your tenants while also generating additional cash flow. Now you need to be careful with laundry rooms. If you are getting a contract for a vendor to come in, that takes care of your laundry room. So they provide everything and they give you a set amount or they give you a percentage of what’s made on it. Or if you’re buying a property and they have a laundry room and they already have a vendor in there because whoever the next owner may be in the property, those laundry care contracts will carry over to the next owner if you sell the property. Therefore, if your contract with laundry firm is unfavorable, it may slightly devalue your property. We had a property once and we actually, the contract ran out and we didn’t renew it and we actually had our laundry room vacant for months because it was a selling thing.

Charles:
Now we could go and put it out there to our investor or to in the market with our broker and say, you choose, there’s no laundry contract here. You go out and you can choose your own laundry contract. There’s nothing else here. And that is much more when you don’t have contracts that carry over to the buyer. These are all benefits of people buying from you because if they can now make their own decision and put their own laundry company in there. So moving on to utilities, so rubs ratio, utility billing systems, and you can bill back utility services to your tenants that are paid by the property owner and you’d be very careful not to overcharge charging only the actual cost paid. And utilities, typically this is done with older buildings that lack individual water meters for each unit. And in two weeks I have an episode coming out on rubs and it’s gonna be SS 2 5 9, that’s SS 2 5 9, so you can check that out.

Charles:
And it’s all about adding rubs to your property. Next is wifi internet packages. Now the internet is definitely one of the best ways to generate additional income, I feel in these recent years. And we recently did this at a property and I believe our cost for like one plus gig high speed fiber is around like 20 or $25 per month. I’ve seen some people do deals that was maybe up to $40 a month, but either way it’s gonna be, it’s a premium service that every tenant will use and which you can now offer to them for much less than they would traditionally pay themselves. So it’s actually a real benefit for everybody involved. For the property, property managers for the company if they’re charging, say $50 a month for this ultra high speed fiber where your tenants might have to pay 80, 90, a hundred dollars a month for the same thing, and then where that that property manager, that landlord can now make somewhere in the neighborhood of 10, 15, $20 a month off that it’s a win-win for everybody.

Charles:
And then for the service provider, they now have the whole building locked up and yes, they’re making that 10, 15, $20 a month more as the property owner, however, they’re paying that even on vacant units. So you have to figure that out and that’s why you might wanna make sure you’re making that extra five or so dollars a month per per unit that is when people are paying you because you have to make up for some of those vacant units that you’re still paying. And that’s the deal you have with it. Hey, we have a hundred units, we can pay this company, it’s gonna be 30 bucks a month per each unit, no matter if they’re vacant or if they’re occupied. And then we go to our tenants and we’re gonna sell them for 50 bucks a month. Okay? So it’s an additional income source and for, you know, it’s a, it’s a huge benefit and everybody wins on it and the service provider now has a hundred units locked up and they don’t have to fight anybody for many years to come for that contract.

Charles:
So value add services moving forward, this is like vending machines and ATMs and usually these do not cost a property owner anything and the provider will simply split profits with you. So like ATMs, I know it’s like they may charge your tenants three to $4 per transaction in today’s time with many banks. They cover that back to your tenant to that account holder and then they’re gonna split that fee, whatever’s charged with the property owner. Okay? Onsite retail, I mean, does your property have any unused space that can be legally converted into a retail unit and rent out advertising? So local businesses may want to advertise to your residence and pay you a fee and it could be a win-win if you accept a lower fee for advertising and if the merchant offers an exclusive deal to your tenants. So I was in many years back when I rented an apartment, they had like a shopping center that was next to it.

Charles:
And what the property managers did was they got all these deals from the retail tenants at the shopping mall to offer them back to the the tenants of the building. So it’d be like, you know, 20% off haircuts or this or that or get a free here or discount here. And that just in incentivize all those tenants to instead of going somewhere else to use services for restaurants, whatever it might be, to go next door to the shopping plaza. And it was very, very smart because again, it’s a win-win for local businesses for the tenant because they’re getting a discount. And for also for those landlords, I mean people like using the shopping mall next door and all the retail stores that’s gonna help you retain those tenants, right? Clubhouse rentals. Is there a common area that can be rented out for events?

Charles:
This is, this is a big one. So if you have anything like that, you can start offering out to tenants. Make sure you know, you have to deal with a whole insurance thing. It’s just like getting like a, a wedding venue. You probably have to get your own insurance for it, have that already set up for them where they go and get that to make sure there’s no issues. And of course everything gets really mucky if there’s alcohol involved in anything like this. So this is something you’ve gotta check with insurance, you’ve gotta check with your property manager and I’ll rent the property and incorporate some ancillary income ideas. With a well run property will not only increase its income, but also increases its tenant retention. So just don’t get too aggressive in charging for services that many tenants would consider to be included in their rent, such as like access to the gym or pool. And if you’re interested in learning some tactics for finding tenants, you can check out episode SS 216. That’s SS 216. I hope you enjoyed. Please remember to rate, review, subscribe, submit comments and substantial show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at syndicationsuperstars.com. That is syndicationsuperstars.com. Look forward to two more episodes next week. See you Then.

 

Links Mentioned In The Episode:

  • SS216: The EASY Way to Attract Great TENANTS Without Spending a Fortune

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