Multifamily - Underwriting Other Income
How do you guys go about underwriting other income? Do you just slap on a per unit amount based on historicals or do you get really granular? (Pet rent, internet fee, etc.)
For Parking, I calculate the "Gross Potential Parking Income" and then factor it down by the period's physical occupancy -- then of course determine if it passes the sniff test.
Application Fees are driven by leased up units month over month.
Then I back into a percentage to capture the remaining Other Income by looking at longer term periods.
We get "really granular". A lot of what you mentioned is fundamentally driven by resident activity. Bad debt recovery, cancellation/term fees, etc. will require historical data to get a good picture of what to expect going forward. I also like to really understand income requirements for tenant base as this can also aid in assumptions. Hope this helps, maybe give me a couple more line items you are struggling with.
In my market, other income makes up a substantial portion of total income so I'd like to be as accurate as I can. I break it up into "required" other income charges like internet packages, "amenity fees", etc. that tenants are obligated to pay. That seems easy to underwrite since it's an obligation that the tenant must pay. For RUBS, I just do a generic 95% of utilities to be safe. I hit vacancy on rental income (not rent + other income) so just something I have to be aware of.
I'm a bit unsure about how to underwrite the more irregular fees such as laundry, late fees, application fees, cleaning, NSF, MTM, etc...
I lean towards backing into a per unit amount that makes sense based on historicals
We just throw in a lump $50/unit Other Income into our model (note - this is separate from parking income, property premiums, unit premiums, cable fee / Bulk WiFi). We usually get questioned on it by equity and throw together some dubious backup. I think the right number is probably $30-40/unit. At a previous employer, we broke it out very granularly based on historical data:
Storage Units
Misc Income
Fob Replacement Fees
Violation Fees
Fetch
Move Out / Damage Fee
Clubhouse Rental
NSF Fees
Bad Debt Recovery
Late Fees
Termination Fees
Cable Income
Pet Rent
Pet Fee
Application Fees
Administration Fees
Transfer Fees
Month to Month Fees
Short Term Lease Fee
Utility Recovery (RUBS)
How far back with historicals would you go? T12, last 3 years? I've been doing your first method. I work in brokerage so maybe that's more than enough lol
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