Anyone who has ever worked in accounting knows that there is a unique language that comes with the territory. While terms like “revenue” and “expenses” are relatively straightforward, others can be more difficult to remember. This is particularly true in the multifamily sector, where properties tend to have a lot of moving parts. From tracking rent payments to monitoring repair and maintenance costs, multifamily accounting can be complex. However, by keeping a few key terms in mind, anyone can quickly become a pro at multifamily semantics. Here are just a few of the most important phrases we will cover:
When analyzing a multifamily property, one important metric to consider is gross potential rent (GPR). GPR is the total amount of revenue that a property can generate, and is calculated by multiplying the number of units by the market rent per unit. For example, if a property has 100 units and the market rent for similar units in the area is $1,000 per month, the GPR for that property would be $100,000 per month. While GPR is not always an accurate predictor of actual revenue, it can give you a good idea of the potential income for a property. When considering multifamily properties, be sure to take GPR into account in order to get a fuller picture of the revenue potential.
Concessions and non-revenue items are often given away by property managers in order to help maintain occupancy or gain new tenants. Common concessions include move-in specials, waiving of application fees, and discounts on rent. Non-revenue items may include staged model units that are used to show prospective tenants. While these incentives can be helpful in attracting new tenants, they can also lead to vacancy loss if not properly managed. Property managers should carefully track the concessions and non-revenue items that are given out, in order to ensure that they are not adversely affecting the bottom line.
Vacancy loss is the percentage of units in a property that are not occupied and not generating rental revenue. Vacancy loss can have a significant impact on the profitability of a property, as it represents a direct loss of income, it can be caused by a variety of factors, including turnover, lease expiration, and repair/maintenance work, it can also be seasonal, with properties typically experiencing higher vacancy rates in the summer months. Vacancy loss is typically monitored through a property’s occupancy rate, which is the percentage of units that are leased at any given time.
As a property manager, it’s important to keep track of all the money that is owed to you by your tenants. This includes not only the rent that is owed on a monthly basis, but also any other debts that may be incurred, such as for damage to the unit or for unpaid utilities. Bad debt is any debt that is owed but cannot be collected. This can occur for a variety of reasons, including if the tenant moves out without paying, if they file for bankruptcy, or if they are evicted. While bad debt can be frustrating, there are a few things you can do to try to collect it.
Loss to lease is a type of income lost that’s based on existing in-place leases or new leases signed that are below the market rent price at the property. Loss to lease can be different based on the management software system approach for leasing. The two common software approaches are the straight-line method and the GAAP method. With the straight-line method, loss to lease is spread evenly over the term of the lease. With the GAAP method, loss to lease is recorded in the period in which it’s incurred. Loss to lease is an important factor to consider when evaluating a property’s potential income.
Other income can be defined as any fees charged in addition to rent. This might include things like admin fees, application fees, late charges, pet rent, reserved parking fees, transfer fees, water/sewer rebills, internet/cable, trash rebill, pest control fee, renter insurance fee, and garage fee. Other Income can be a significant source of revenue for property owners and management companies, so it’s important to understand what is included in this category. Other Income should be carefully tracked and recorded so that you can properly budget for it and ensure that all revenue is accounted for.
At Pantheon Investments, our goal is educating investors by answering any questions you may have about multifamily investing. Revenue terms can be confusing, so we want to make sure you have all the information you need to make informed decisions about your investment. You can book a call with us at www.pantheoninvest.com/#contact, and one of our experienced team members will be happy to walk you through everything you need to know.