📈Other Income: The Best Way to Model

Nothing happens instantly. Especially with commercial real estate!

With the deals that we underwrite, adding new forms or increasing 'other income' is a huge value-add strategy for us. But usually, this income will not be realized instantly.

Here are a few common other income items we typically look to add with our new acquisitions:

• Valet Trash

• Utility Bill Back

• Internet Service

• Package Fee Service

Unfortunately, a lot of underwriting models I see do not allow you to model new sources of revenue accurately. So for example, if you planned to implement internet service to a new acquisition, the revenue from this should be modeled in gradually over time.

The reason I choose to gradually model in new sources of revenue is for the fact that these items will only be charged to new leases. I could not buy a property and then the next day force all the tenants to now pay a $25/month internet charge since that was not in their original lease.

Here's an example:

❌This is what not to do. In the example above, we plan to implement a $25 internet charge to this 100-unit apartment complex after acquisition. But we are assuming all 100 units are instantly paying the $25/month charge in the first year after takeover.

(Unless you know you can do it) This is will overinflate your projections...

Instead, do something like this:

I would recommend gradually modeling the revenue from the new source of income over a period of time. So as more and more leases expire over time, you can accurately model adding the $25 internet charge to new tenants or new leases.

So in reality, my pro forma may actually look something like this once we are able to fully implement the $25/month internet charge to the entire property.

Pro Tip: I would always apply a vacancy percent to your other income charges. In the example above, I'm assuming by Year 3, all 100 tenants will be paying our new internet charge of $25/month, after a 5% vacancy factor.

100 units - 5% vacancy = 95 tenants

95 units x $25 charge x 12 months = $28,500

Same goes for other income items such as valet trash, new utility charges, and any new monthly fees. Speak with your property management team to develop a plan for how fast these new charges can be implemented.

Real Estate Terms Defined

👋 Did you enjoy this newsletter? The best compliment would be for you to share this on social media or with a friend.

Please share this link:

📈 Modeling Your Success,

• Analyze Your Next Deal in 10 Minutes or Less 

• Free Acquisitions Checklist

• Miss Last Week's Newsletter? Read Here

• Private Facebook Community