“People think landlording is dealing with people—but I deal with machines too. The only difference is, is that machines can be fixed quickly—with people it takes years.”
In the real estate business, it’s called ancillary income—income derived from other sources outside of rental income. Ancillary income can be many things: coin-op laundries, soda or vending machines, cleaning service, pet fees, and almost anything you have the imagination to charge a fee for—including late fees.
A common add-on fee is caused by late payment of rent. You can charge 10% after the fifth day. You could also collect the interest from deposits—and of course, you charge an application fee. All states are not the same, so check with your state regarding how much you can charge for late fees and whether tenants are required to receive interest on their deposits.
I had a tenant who did not get her pay check until the 15th of each month. Since rent was due on the 1st of the month and late after the 5th, this tenant could never save enough money to pay by the 5th of the month. She always paid her rent every month on the 16th. The tenant’s rent was $750 per month and a 10% late fee of $75 was routinely charged each month. She paid the late charge every single month—like clock work. It was paid each month for over a year this way. She was so consistent about paying on the 16th of the month, we stopped notifying her of her late rent—it always came in at the same time each month with an extra $75. That is an extra $900 at the end of the year for those of you counting. She was a good tenant who paid up, albeit late, each month.
There are many ways to increase your cash flow and to collect more than 100% rent. Here are a few common ways to make more than just rental income:
(1) Application Fee. An application fee should be charged to everyone who wants to rent from you; a $50 minimum fee with an additional fee of $25 per adult (18 years of age) living in the unit. This fee is nonrefundable and part of it will be used for credit checks and your time to call references and employers and to verify other information on the application.
(2) Late rent fee. This was noted earlier with an example, but typically, you should charge a late rent fee of 10% of the total amount late. Hopefully, you will never need to collect a late rent fee—but this would be highly unlikely. Late rent fees do add up, so don’t neglect to collect them and make it a business practice that your tenants know they have to pay up when they are late with the rent. Notify tenants that you have to pay your billed by the first of each month, as well. And if you do not pay your mortgage and utility bills on time, you are charged a late fee.
(3) Pet fee. Nearly 50% of all households have pets. If you decide to not allow pets, you will alienate a large possible tenant population. You will also eliminate the possibility of receiving a monthly pet fee. Pet fees can range from $10 to $50 per month or more, depending on the pet and the number of pets per household.
Pets can also cause damage, so we take on an additional security deposit of $25—with large dogs you can charge $250 per dog. The extra income you make by accepting pets is well worth the damage they may potentially cause; this is especially true when you have the same tenant for many years. The nice thing about charging pet rent is that it costs you nothing to implement.
(4) Soda Machine. With an apartment building of 15 or more units, a soda machine can gross between $150 to $200 per month. You can purchase soda from 23 to 28 cents each and charge 75 cents to $1 per can. Electricity to run the machine will cost $30 to $50 per month depending on your location. Soda machines are free from Coke or Pepsi distributors as long as you buy your sodas from a distributor. A distributor will also deliver to your location. Operating a machine, however, does require some work and may not be worth the hassle for a monthly net profit of $100. If you have a larger apartment building of 40 or 50 units, then you could show a monthly profit of $300 to $500 per month. You will need to stock the machine about once per week.
You will also need a place to store the sodas. You can use a storage closet at your apartment building. Make sure to put a good lock on the door to prevent break-ins.
Increasing cash flow is one of the most important concepts to the proactive investor. The ideas presented here are from the book High Engagement Landlording. Investors serious about making money in real estate and increasing cash flow should obtain a copy of the book Cash Flow & Co.: A Super-System for Real Estate Investors; this is a book designed specifically for the aggressive investor looking for ways to increase cash flow and receive more than 100% rental income. With seventy proven ideas, this book is referred to as the “Bible” of ancillary income and is scheduled for release in Fall 2018.