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May. 7, 2013

Creative Revenue

By Jessica Fiur, News Editor

What’s the best way to generate ancillary income at a multifamily community? The tried-and-true methods come to mind, such as telecommunications and submetering. But the buck doesn’t stop there.

“Some of the more traditional avenues [to generate income] include: application fees, late fees, one-time pet fees, monthly pet fees and non-refundable move-in fees,” says Mike Brewer, vice president of operations at M Brewer Group.

“I think the chief reason why these are effective is that they are largely universal across the nation with both small and large operators,” adds Brewer. “The amounts may vary, but the practice of charging is commonplace in the eyes of the renter.”

Scott Rawley, national account manager at Multifamily Ancillary Group, agrees that property managers should look beyond the basics. “When most people in the multifamily industry think about ancillary income, they really only consider the site-generated items,” he says. “These types of services work because they are measurable and able to be tracked. That being said, a successful program is not one that just gathers the most dollars. A part of a truly good ancillary services program should also be cost reduction.”

Think differently

The methods of earning ancillary income are only constrained by the type of property—and one’s imagination. For example, just look upwards.

“Rooftop revenue is pretty significant at some of our high-rise locations,” Barney Pullam, vice president of business process at Waterton Residential, says. “We partner with a rooftop management company that manages our rooftops and actively seeks out people who need that space. On a dollar-for-dollar basis, when you establish that type of ancillary revenue stream at your community, that works out pretty well because it doesn’t interfere with any of your other operations.”

And don’t be afraid to go way out of
the box.

“I have seen some really interesting ideas,” Brewer says. “The one I like the most is a vending machine that distributes grocery store-like items: milk, bread, cheese, cereal, canned goods, laundry detergent and the like. I also see Internet and cell phone revenue agreements coming to fruition at some point. As each becomes more ubiquitous in our daily lives, demands for flawless delivery will amp up. Finally, I can see a future where big-name appliance and television manufacturers provide incentives for their brands to be installed in our communities.”

And even if you stick with traditional methods, there are ways to do it to ensure profitability.

“Utility billing is something that’s very common practice; however, maximizing that value is less common,” Pullam says. “Are you really looking at your fees on a regular basis and adjusting them accordingly? Why not push the envelope? Is anyone going to move out for a dollar increase in a trash charge or a utility charge? We’re not really focused on what our fee structures are, and if we don’t maximize those, then we’re leaving money on the table.”

Resident pushback 

Of course, before enacting a new way of generating ancillary income, do some research and make sure your residents understand the new charges.

“If you don’t know or understand the landscape, you can and will shortchange yourself,” Brewer says. “The key is training—I can’t stress this enough. I’ve seen too many occasions where untrained team members either poorly communicate, don’t communicate or are afraid to communicate all the fees that are associated with a lease transaction.”

Rawley agrees. “Let the residents know why there is a new bill or charge, how it can positively affect them, and what are the drawbacks if the system was not in place.”

And the more information property managers can provide their residents, the better.

“With respect to charging for amenities, it’s just a matter of how you are marketing it,” Pullam says. “Are you offering an amenity that’s unique in your marketplace? You really have to show the resident the value of it and show why there’s this nominal fee for this additional service.”

It is also important to be cognizant of the community’s location and demographics.

“I think the key to managing a good ancillary program is keeping a very mindful ear on the market,” Brewer says. “Be willing to test things often, but be nimble enough to pull back when necessary.

Additionally, don’t add too many ancillary sources to your community at once.

“Be careful of fee fatigue,” Brewer warns. “I think Southwest Airlines has really dialed in on this point. Where every other airline charges for bags, food, blankets and pillows, Southwest uses that to their advantage. As it relates to our industry, I would caution any operator against getting hooked on nickels and dimes, as the sacrifice is often tens, twenties and hundreds lost in vacancy-related line items. [With] all that in mind—lean toward the revenue sharing opportunities when you can.”

So, looking forward, will there ever be a cap on what property managers can use for ancillary income? In short, it’s not likely.

“The one thing there is not is a lack of innovation on ways to make money,” Rawley says.

Don’t Overlook these Sources of Income

There are many ways to earn ancillary income at an apartment community. According to Mike Brewer, some of the tried-and-true methods include:

■  Parking and garage fees

■  Water and sewer services

■  Trash services

■  Laundry services

■  Application fees

■  Late fees

■  NSF fees

■  One-time pet fees

■  Monthly pet fees

■  Non-refundable move-in fees

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