Other income
Also called Ancillary income, Other revenue.
Other income is every dollar a property collects that is not rent for the space itself: utility reimbursements, parking, storage, pet rent, application and administrative fees, late fees, laundry, and amenity or trash charges. It is added to rent revenue on the way to effective gross income.
How it works
On a stabilised apartment property other income commonly runs $50 to $120 a unit a month, and on a well-run one with a full billing programme it can exceed that. In dollar terms it is small relative to rent. In diligence terms it is one of the most informative lines on the statement, because it is where operational quality shows up and where seller optimism is easiest to plant.
The largest component in most multifamily deals is utility billing, usually a ratio utility billing system that allocates the master-metered water, sewer and trash bill across units. That income has an expense directly behind it, so it is not margin. Underwriting the reimbursement revenue while holding the underlying utility expense flat creates income that does not exist.
The other components behave differently from each other and should not share a growth rate. Parking and storage are contractual and stable. Pet rent grows with lease turnover. Application and administrative fees are a function of how many people move in, which means they rise when turnover rises, exactly when the rest of the model is being penalised for it.
Formula
Other income per unit per month = annual other income / units / 12- The per-unit-per-month figure is the comparable, not the dollar total
- Reimbursement income should be tested against the expense line it reimburses
- One-time and non-recurring items belong in the trailing statement, not in a forward year
Worked example
Illustrative 220-unit property. The seller projects a new billing programme recovering 85 percent of the utility bill.
| Master-metered water, sewer and trash | $286,000 |
|---|---|
| Projected recovery at 85% | $243,100 |
| Realistic recovery, allowing for vacancy and non-paymentthe same 85% of the bill, billed and collected in only 85% of unit-months | $206,635 |
| Programme administration costillustrative, $70 a unit a year | ($15,400) |
| Net contribution to NOI | $191,235 |
The seller's number and the defensible number differ by roughly $52,000, which at a 5.4 percent cap rate is about $960,000 of value. Recovery percentages are stated against the bill; collection happens only in occupied units.
The common mistake
Growing other income at the rent growth rate
Applying a single 3 percent escalator to the whole other-income block treats reimbursements, parking and turnover fees as if they had the same driver. They do not. Reimbursements track the utility bill, which has been rising faster than rent in most markets. Fee income tracks move-ins, so a model that assumes turnover falling from 50 percent to 40 percent should show fee income falling with it. Split the line and grow each piece against its own driver.
Related terms
- Effective gross incomeEffective gross income is all the revenue a property is expected to collect in a year: gross potential rent, less vacancy, loss to lease, concessions and bad debt, plus other income. It is the revenue figure operating expenses are subtracted from to reach net operating income.
- Gross potential rentGross potential rent is the rent a property would collect if every unit were occupied for all twelve months at full rent, with no vacancy, no concessions and no delinquency. It is the top line of the pro forma, and everything below it is a deduction.
- Triple net and expense recoveriesUnder a triple net lease the tenant pays base rent plus its share of the property's taxes, insurance and common area maintenance. Expense recoveries are the mechanism that bills those costs back, normally as a pro rata share based on the tenant's proportion of the building's leasable area.
- Operating expense ratioThe operating expense ratio is total operating expenses divided by effective gross income. It is a fast sanity check on whether an expense budget is plausible for the asset type, the market and the way the property is run.
Every figure, traced to its source
Altyst computes these in exact decimal arithmetic, not with a language model, and clicking any number shows the formula behind it.