In multifamily units, Other Income is a term that refers to all sources of income that are not included in the rental income. It is calculated by summing all sources of income that a property has, excluding the rent that tenants pay. In some cases, Other Income is referred to as Ancillary Income. Other Income is an important figure to know, since it is an integral piece of the calculation that determines the Effective Gross Income of a property. To learn more about Effective Gross Income, please read our blog here. Without having an accurate grasp on the amount of revenue generated outside of base rent, property owners do not have a full understanding on the earning potential of their investment.
What are some examples of Other Income?
Some common examples of Other Income are:
Laundry – an owner of a property can own a number of laundry machines and collect all the revenue the machines generate, or they can use a laundry equipment servicing company and split the proceeds. Many real estate professionals prefer the latter as the machines themselves are a hefty up-front cost and they often require maintenance.
Vending Machines – again, property owners can either own their own vending machines or can partner with a third-party company to assist with the installation and maintenance in exchange for a portion of the revenue generated. Vending machines do not generate nearly as much money as monthly rent fees, but it is important to keep track of all income generated, no matter how large or small.
Storage units – on some properties, there may be areas deemed unfit to use for apartment units, which the property owner can then potentially convert into a storage unit. Some residents will then pay monthly fees in exchange for the right to store their extra possessions in a safe, accessible location near their own unit.
Parking – in many instances, parking is a given and is included without paying a single cent extra. But in some locations, especially densely populated areas where parking tends to be congested, the owner of a property can charge residents monthly fees in exchange for a guaranteed spot to park their cars.
Late Fees – in some properties, tenants are charged an extra fee provided they do not pay their rent payment in time. This late fee they pay technically is not classified as Rental income as it is a supplementary figure on top of what they already pay, so it falls under the category of Other Income.
Pet fees – in some cases, depending on the layout of the property and the disposition of the property owner/landlord, an additional pet fee can be charged to any tenant who has a pet residing within their rental unit. Necessary pets like service animals are exempt from this as tenants cannot be charged a pet fee or pet deposit if their animal serves a specific medical purpose.
And many, many more – advertising revenue, utility reimbursement, cable/internet, furniture rental, water, electricity, and administration fees are just a few of the many other items that can be classified as Other Income. Almost anything could be included in this broad term, just so long as it generates income and it does not fall under any other section of the cashflows, like rental income. Theoretically, this list could go on for a long while with a crafty enough property owner who knows how to generate income from a number of sources.
Other Income in Real Estate
At Top Shelf Models, Other Income is accounted for in the models since users can input an annual per unit basis assumption for this metric. During lease up, the model looks at how many units have cumulatively been leased month by month and takes that into consideration when calculating Other Income. Additionally, we calculate our General Vacancy, Concessions, Bad Debt, and Non-Revenue Units based on a percentage of the total Gross Potential Revenue Income and Other Income month over month. Therefore, Other income is a requisite figure for the Effective Gross Income calculation.
Gross Potential Rental Income + Other Income - General Vacancy - Concessions - Bad Debt - Non-Revenue Units = Effective Gross Income (EGI)
Conclusion
Often times when observing the massive amounts of revenue that are generated from tenants’ rent, it is easy to overlook the measly figure entitled “Other Income.” However, Other Income assuredly has its place in the Real Estate world as it is a necessary component of the important Effective Gross Income Calculation and can generate property owners a significant additional amount of income if effectively utilized.
About the Author
Brittany Martin is TSM’s Vice President who has developed real estate financial models for an extensive range of property types. She specializes in land, hotel, and storage models. Please reach out to her if you have any questions on Multifamily Other Income or if she can help you with your modeling needs.
