Analyzing Other Income in Multifamily Properties

When evaluating a multifamily property, rent revenue from the units is only part of the story.  The other piece is other income, or ancillary income, which are smaller revenue streams that can meaningfully boost the bottom line and impact the property’s overall value.

Example: 

The subject property is a 100-unit apartment complex.  As shown on the grid, there are three full years (plus YTD) of operating history and the property has multiple other income sources.  Historically, other income represents around 6% of potential gross income (PGI) (see highlighted). 

For the proforma, if we were assuming the following estimates: RUBS Income: $1,450/units, Laundry Income: $150/unit, Parking Income: $240/unit, Storage Income: $60/unit, and Pet Income: $75/unit.  That’s $197,500 of additional annual revenue.  Using a 5% capitalization rate, that translates to roughly $3,950,000 of added value ($197,500/5%).

Common Types of Other Income:

RUBS Income

Most multifamily properties include water, sewer, and trash in the rent, since units are often individually metered for electric and gas (billed directly to tenants) while the property is master metered for water.  Occasionally, a Ratio Utility Billing System (RUBS) is implemented, which allows the landlord to charge back tenants utilities based on unit size or number of occupants.  In some cases, this charge is simply a flat monthly fee.

Laundry Income

If an apartment building has an on-site laundry facility, it can generate additional revenue through coin- or card-operated machines.  It’s important to confirm whether the equipment is owned or leased.  If leased, the landlord typically splits the revenue with the laundry company, meaning owned machines generally yield higher revenue per unit.

Parking, Storage, and Pet Income

If parking is not included in rent, storage is available at an additional cost, or if pets are allowed with a monthly fee, identify how many units are paying for these items and at what rate.  This will provide the most current data for these additional revenue generators.

Even modest ancillary revenue streams can make a difference.  Analyzing these accurately ensures to provide a more credible estimate of PGI.