Owners feel that the greatest income limiting factor in real estate is the calendar. Owners who focus on rental income alone know they are limited to a maximum of 12 months. Yet smart owner’s who look for that extra income can find it – let me show you where to look.
Non-Rent Income
While it is impossible to add another month to the calendar, it is possible to create extra revenue from rental property. Collecting ancillary or (non-rent) income is a tool used by many successful real estate investors to generate extra income and increase the value of their property.
There are many different sources of non-rent income to consider, such as Application Fees, Admin Fees, Rental Premiums on specific units, Pet fees/ Rent, and these are only a few. Let’s discuss some of these fees in a little more detail.
Application Fees – We definitely advise that you have your prospects fill out a Rental Application and run a background screening. Background screening typically cost $15-$20. A common Application Fee charge in our Market is between $25 and $35. You will pass this cost on to your prospective tenants. If you do the check but absorb the cost, changing your policy and charging an Application Fee will offset that expense and increase your income.
Admin Fees – Many owners include an “Administrative Charge”. This fee is collected at the time of application along with the deposit. This fee may be called a lease initiation fee, cleaning fee, redecoration fee, etc. The purpose of this fee is to do nothing but offset office expenses associated with preparing and processing new tenant paperwork. Some companies base the fee on a percentage of their deposit; but the majority of owners make the fee a set amount, like $150. This fee is an excellent way to capitalize on the transient rental market; and according to the TAA Rental Application is non-refundable if the lease is declined or canceled.
Rental Premiums – Would you charge the same rent in your apartment community for the two bedroom unit same floor plan? But what if one has a pool view with vaulted ceilings? No way! Or suppose you have some units with fireplaces and some without. These are an excellent opportunity to capitalize on “Rental Premiums” many savvy rental owners are charging extra for the notion that there is perceived value in a unit on the 3rd floor as opposed to a first floor unit. And this example could work the other way as well depending on your clientele; for instance in a senior community there may be a demand for units on the first floor for accessibility reasons.
Pet Fees and Pet Rent – Studies have shown that when surveyed 45% of renters in Texas either have a pet or are thinking of getting a pet. That is a huge portion of the rental market that you could be missing out on if you do not accept pets. Why not take advantage of this by charging extra non-refundable pet deposits, and rent for pets? Typically owners in our area are charging a extra $200 non-refundable Pet Fee and also a monthly pet rent of $10-$20 per month.
The list of opportunities for you to increase the cash flow on your investment property goes on and on. We could talk about late fees, trash fees, parking fees, utility fees, washer & dryer rental fees, but be sure that you do your home work and know your market before adding new fees. The only limits to ancillary income are your imagination and the constraints of the law. Be sure you understand the legality of any charge before charging it. We recommend you consult with a professional before trying something new to make sure it’s legal.
Many Real Estate investors have found that by executing the collection of these income generators they can overcome the constraints of the calendar year and increase revenue.
By Renee Manes, Multi-Family Operations Consultant in Central Texas
