Services help highlight ways to increase secondary income.
The term "ancillary income" has a positive perception among apartment industry professions. Unfortunately, when its charged to the resident, it's often translated into one of the most negatively perceived words in the English language: “Fees.”
The result is the attempt to hide, obscure or just flat out ignore the fees being charged to residents. Other operators have simply given up on charging fees because of negative feedback from residents.
But it doesn't have to be that way, according to the panelists on the “Ancillary Income: It's Not a Game of Hide-and-Seek" session at Apartmentalize 2021. That's because it's possible to better select, better communicate and better package charges that result in ancillary income.
"When you start thinking about fees, it's really easy to think about how you can bump those up," said Rick Ellis, Broker and Owner of ELLIS HomeSource Property Management. "But if your increased income also creates increased turnover, then the end result is probably less value. We have to remember the balance of increasing income and fees with the idea of keeping residents longer."
To maintain that balance, it's critical that anything an operator charges to their resident adds perceived value. One example Victoria Cowart, Director of Education and Outreach for PetScreening, shared was a scent detection program in which dogs were used to check every apartment for pests before move-in. Cowart was able to charge three times what it cost her to complete the service.
"When we explained the fee to prospects, that was something that was never pushed back against,” Cowart said. “If they had a problem in their home with pests 120 days later, they had been educated. They paid us to tell them it’s not our problem. Now they own it. They bought it."
Pet fees are also a good example of fees that residents see value in, according to Cowart. They become even more valuable when operators reduce their breed restrictions and choose to charge more for breeds known for being more aggressive.
"We have dogs of every breed on our properties," Cowart said. "Every breed that's out there. So, why not start considering a reduction of your pet breed restrictions, since they're all there anyway, and start charging for risk-based pet presence in your communities?"
According to Cowart, the data shows that a risk-based pet fee model results in $15,000 to $30,000 more in revenue than the one-size-fits-all pet rent model of $15 or $20 a month for any pet that is allowed. "Set your cap rate on that power punch," Cowart said. "There's a ton of money on the table... a ton."
There's also a ton of opportunity to garner ancillary income from sources other than residents. Jacklyn Arnest, Senior Director of Marketing for DTN Management, implemented a partnership with Panera Bread in which the brand paid the management company to distribute promotional flyers to the residents of one of their communities.
"Everybody wants to reach your residents," Arnest said. “You have the opportunity depending on the size of your portfolio, or even if you're a 200-unit property, to find what's important to your resident and find the people who want to reach them. And use that to come together to generate income."
Arnest also generated ancillary income by renting extra space on digital monument signs to promote commercial space located on DTN Management's mixed-use communities.
But the simplest way to take the sting out of ancillary income plays "is to stop calling them fees," Ellis said. "What a horrible, horrible word. Do you want more fees? These are services that they get to enjoy for a cost. How do you increase ancillary income without charging fees? Well, you drop the word fees. We call them services."