What Are Non-Revenue Units?

What Are Non-Revenue Units?

Non-revenue units are units that do not produce any sort of income. There are two main types of non-revenue units: employee units and model units. Employee units are units that the property staff or property manager occupy and the multifamily complex does not charge them in return for their services to the property. Model units are units that the multifamily complex shows to prospective tenants to entice them to sign a lease.

Why Are Non-Revenue Units Important?

Non-revenue units should be included in financial models in order to accurately demonstrate the available units for rent. If model units are modeled as if they are producing revenues, the cashflows would be inaccurate. The cashflows would be overstated skewing the returns. One should always include non-revenue units (if the multifamily complex has them) in their financial models.

How to Model Non-Revenue Units

There many ways in real estate to model non-revenue units. Here at Top Shelf Models we model non-revenue units as a negative income line item. A non-revenue percentage is applied to all positive forms of income and the result is a negative income line item. Typically, non-revenue units are anywhere from 0.5%-2% depending on the number of non-revenue units as well as the size of the apartment complex. For example, what will happen if a multifamily project produces $300,000 of positive income in one month and a 1% non-revenue percentage is applied?

Non-Revenue Unit = $300,000 X 1% = $3,000

The non-revenue unit negative income for that month would be $3,000. Be sure to include this as a negative line item in the EGI.

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About the Author

Eric Bergin is the founder of TSM. He realized that there was a need for real estate financial models that were more than just generic templates. He wanted to create a personalized product for his customers that would ensure success for them and their company. Please reach out to him if you have any questions regarding non-revenue units or if he can help you with your modeling needs.