A.CRE

Other Income

In real estate underwriting, Other Income refers to any revenue source not otherwise included in other income line items. Other income may include any number of revenue generators, from application fees to amenities fees. In the basic real estate pro forma setup, Other Income is combined with Total Rental Revenue to arrive at a Gross Potential Revenue line.

Putting ‘Other Income’ in Context

Scenario Overview

In this hypothetical scenario, Skyline Ventures, a real estate private equity firm, has acquired Prairie Heights Residences, a 150-unit market-rate multifamily property in Bismarck, North Dakota. Prairie Heights offers a mix of one-bedroom, two-bedroom, and three-bedroom apartments. The property has recently undergone light renovations to enhance its appeal to tenants seeking upscale amenities in the growing suburban market of Bismarck.

Other Income at Prairie Heights Residences

In addition to rental revenue, Skyline Ventures identified several opportunities to boost Other Income at Prairie Heights. These revenue sources were not part of traditional rental income but were essential for underwriting the investment. Below are the primary components of Other Income at the property:

  • Application Fees: $50 per application, with an average of 20 applications processed per month.
  • Pet Fees: A recurring $30 monthly pet rent, collected from 40 pet-owning tenants.
  • Covered Parking Fees: $75 per month for 30 premium covered parking spots.
  • Laundry Facility Income: Coin-operated laundry machines generate $1,000 monthly.
  • Amenity Fees: Access to the community fitness center is offered at $15 per month, used by 50 tenants.

Calculation of Other Income

Here’s how the Other Income line item is calculated based on these revenue streams:

Monthly Other Income:

  • Application Fees: 20 x 50 = $1,000
  • Pet Fees: 40 x 30 = $1,200
  • Covered Parking Fees: 30 x 75 = $2,250
  • Laundry Facility Income: $1,000
  • Amenity Fees: 50 x 15 = $750

Total Monthly Other Income: $1,000 + $1,200 + $2,250 + $1,000 + $750 = $6,200

Annual Other Income:

To annualize the Other Income, multiply the monthly total by 12:

$6,200 x 12 = $74,400

Integration with the Pro Forma

The Other Income figure of $74,400 is combined with the Total Rental Revenue to calculate Gross Potential Revenue for Prairie Heights Residences. This additional income stream boosts the property’s Net Operating Income (NOI), directly improving the property’s valuation and the investment returns for Skyline Ventures.

Frequently Asked Questions about Other Income in Real Estate Underwriting

In real estate underwriting, “Other Income” refers to any revenue source not included in standard rental income line items. This can include fees from applications, pets, parking, amenities, laundry, and more. It is typically combined with total rental revenue to arrive at Gross Potential Revenue.

Common sources of Other Income include:

Application fees

Pet rent

Covered parking fees

Laundry machine revenue

Amenity fees (e.g., fitness center access)

These vary by property type and tenant demand.

Skyline Ventures calculated monthly Other Income from various sources as follows:

Application Fees: 20 apps/month × $50 = $1,000

Pet Fees: 40 pets × $30 = $1,200

Covered Parking: 30 spaces × $75 = $2,250

Laundry: $1,000

Amenities: 50 tenants × $15 = $750

Total monthly Other Income = $6,200. Annualized = $6,200 × 12 = $74,400

Other Income is important because it increases Gross Potential Revenue, which in turn boosts Net Operating Income (NOI). Higher NOI leads to higher property valuation and stronger investment returns. It also diversifies income sources beyond base rent.

In a basic real estate pro forma, Other Income is added to Total Rental Revenue to calculate Gross Potential Revenue. This figure feeds into the overall income calculation used to estimate NOI and assess deal viability.

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