Other Income in Apartment Underwriting: What to Count
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Other income is the revenue an apartment building earns beyond base rent, such as laundry, parking, storage, pet rent, utility reimbursements and fees. In underwriting, count only items that recur, that appear in the T-12 and the bank deposits, and that are legal and likely to continue under the new owner. Other income is capitalized into value just like rent, so a seller who adds a one-time receipt can raise the price the numbers seem to support. Sponsors who raise equity with DoorRaise are expected to show how they built this line.
This post lists common sources, the items to strip out, a hypothetical example and what to check. It is part of our guide to net operating income.
What counts as other income?
- Laundry and vending
- Parking, garages and storage
- Pet rent and pet fees
- Utility reimbursements and ratio utility billing
- Late fees, application fees and other administrative fees
- Cable or internet bulk agreements
- Cell tower or billboard leases
- Forfeited deposits and lease termination fees
What should be stripped out?
- One-time receipts, such as insurance claim proceeds, legal settlements and a sale of equipment.
- Fees that are not allowed, or may be restricted, in the property's state or city.
- Income from a contract that ends with the sale, such as a bulk service agreement the buyer will not assume.
- Late fees at an unsustainable level. If late fees are high because many tenants pay late, the same tenants may be a bad debt problem.
- Anything that does not appear in the bank deposits.
A hypothetical example
This example is hypothetical, for illustration only. A 60-unit building with market rent of $1,150 a unit has gross potential rent of $828,000 a year.
| Item | Annual amount |
|---|---|
| Laundry | $6,000 |
| Parking | $9,000 |
| Pet rent (15 pets x $35 x 12) | $6,300 |
| Application and late fees | $7,000 |
| Storage | $2,400 |
| Total other income | $30,700 |
| Per unit per month | about $42.64 |
| Share of gross potential rent | about 3.7% |
At a 6.5% cap rate, $30,700 of income supports about $472,000 of value. If $7,000 of the fees is not allowed and $9,000 of parking disappears because a lot is sold, the sustainable figure is $14,700 and the value falls by about $246,000. One bad assumption on a small line becomes a large price error.
How do you verify other income?
- Match each line in the T-12 to the bank deposits for the same months.
- Read the leases for fee terms and the vendor contracts for laundry, parking or bulk services.
- Check local rules on late fees, application fees and pet fees. Service animals have separate legal protections, and a lawyer can advise on them.
- Ask whether any income depends on a contract the buyer will not keep.
- Compare the per-unit figure with similar buildings you can document. See the rent roll and T-12 guide.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5 or more units under Rule 506(b) or 506(c). It prepares the offering documents from the sponsor's inputs, coordinates escrow with Enterprise Bank & Trust, collects investor funds by wire only and handles filings. The deal page shows investors your income assumptions with the business plan. DoorRaise does not verify a seller's or a sponsor's numbers; sponsors must check what they present.
DoorRaise is for apartment buildings with 5 or more units, and sponsors can launch their deal here. Setup is $1,500 (non-refundable), and the administration fee is $5,000 a year from closing.
To get started, create your sponsor page or see the fees.
FAQ
What is other income in apartments?
It is revenue beyond base rent, such as laundry, parking, pet fees and late fees.
Is other income included in NOI?
Yes. It is part of effective gross income, which is why an overstated other income line flows straight into NOI and value.
How much other income should I assume?
Use what the T-12 and bank deposits support for the property, adjusted for what the new owner can legally continue. Do not use a number from another building.
Should I count late fees?
Only at a sustainable level and where allowed. High late fees can signal a collections problem.
Are utility reimbursements other income?
Often they are shown as income, with the utility cost in expenses. Some models net them. Compare buildings on the same basis.
Sources
- Fannie Mae, Multifamily fixed-rate mortgage loans
- 17 CFR 240.10b-5, Employment of manipulative and deceptive devices
This article is general information, not legal, tax or investment advice. Talk to a securities attorney and a CPA about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.