10 Additional Incomes From Rental Property

To real estate investors, income usually means rent. Rent for an apartment or non-residential space. However, rent is not the only kind of income real estate can generate. Other types of income include:

1) Garage Rent

Generally speaking, you should never include rental of a garage as part of rental of other space. The tenant may not want garage space — although he is not likely to turn it down when it is offered at no cost.

But, if you rent the garage separately, he will probably decline it. Good. Then you can rent it to someone else and make a decent income from it.

2) Interest on Security Deposits and Rent Receipts

As a building owner, you get to handle money. Rent security deposits and various kinds of monthly income. The right to handle money is valuable — because it earns interest.

You collect rents by the 3rd of each month. You pay your bills on the 25th. The checks hit your bank an average of 4 days later. That means the money is in your bank account earning interest for 29 – 3 = 26 days each month. At an annual interest rate of 7%, you have a daily interest of 0.01918%.

3) Security Deposit Forfeits

To maximize deposit forfeit income, charge the highest deposit the law and/or market will allow. The other aspect of maximizing forfeit income is to enforce the lease strictly. Don’t cheat any tenants out of their security deposit — but don’t be a pushover either.

4) Vending Machine Income

Vending machine income probably is a breakeven proposition at best. That is, the electricity, gas, cleaning, share of the mortgage payments attributable to the space used by the machines, and so forth probably equals of exceeds the income.

Vending machines are more of an amenity for marketing of the space in general. You are far better off owning vending machines than letting someone else put them in on a concession basis.

5) Late Charges

My late charges averaged about 1/2% of the gross. Sounds small. But if the gross is substantial, it’s enough to affect the building value by thousands.

You get the maximum late charge income by having the highest late charge allowed by the law or the market, whichever is less. And by enforcing it.

6) Parking Fees

Parking fees are generally inappropriate in apartment buildings as well as suburban office buildings where parking is generally available for free.

However, where parking is hard to find, parking fee income may be possible. Office tenants generally expect to get one or more spaces included in their rent. That is appropriate if virtually all tenants in the building drive to work, not walk or use mass transit.

7) Sale of Utilities to Tenants

Sometimes, you can sell utilities to tenants. The usual utilities like gas, electric, water, or sewer. And high tech such as phone service or cable TV. Your ability to get into these businesses is determined by the structure of your building and local facilities and laws.

As long as you can deliver the service efficiently and sell it profitably, there is a profit to be made.

8) Sign Space Rental

If your property has high visibility, you may be able to rent sign space to someone. High visibility is mainly a function of traffic count. The more people who pass by on foot or in vehicles, the more likely the location is valuable as a sign location.

Local laws are also relevant. You generally need a permit to have a sign. And once you have established that you have a viable sign location, you need to make sure the sign will not hurt your property more than it helps.

9) Escalation Clauses

Escalation clauses are clauses in multi-year leases which permit the landlord to pass on expense increases or cost of living increases to tenants. Landlords often put these in leases then fail to use them because of the bookkeeping required.

There is money in them than escalation clauses. So get out your computer, calculate what the tenants owe you, and send out letters demanding payment.

10) Audit Proceeds

Retail leases typically call for a base rent plus a percentage of the tenant’s gross income. That, in turn, creates a temptation for the tenant to lie about his gross income. As a result, most retail leases also give the landlord the right to audit the tenant to make sure he is telling the truth about his gross income.

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