If there’s one thing every company wants to see more of, it’s profits. A healthy profit margin is good sign that the business is:
- Meeting the demands of its target market
- Operating efficiently
In the residential sector, BTR and PBSA properties could be making significantly more revenue through ancillary income.
The US market tapped into ancillary revenue streams years ago to much success. As the BTR market in the UK continues to grow and the student accommodation sector reaches maturity, the next logical step is to explore other profitable options.
In this article, we explain what’s meant by the term ancillary income, how to unlock it, and we’ll also take a closer look at a real example of its successful application.
What is Ancillary Income?
Ancillary income — also known as ancillary revenue — is an additional cash flow that companies earn from the sale of products and services that supports their main source of revenue.
In residential buildings, money is made predominantly from renting out units to tenants. An example of ancillary income could be renting out vending machine space in communal areas and taking a share of the profits. Your main revenue stream will always come from tenants, but the vending machines provide an added boost to the company’s income.
Most businesses generate ancillary revenue or will at least explore their options. Concession stands at the cinema and extra luggage space on flights are just two of the more well-known examples of how a business can create an additional cash flow.
Finding enough opportunities and being able to capitalise on them can make a huge difference to a company. In BTR and PBSA, ancillary income can bring in up to 10% of your development’s overall revenue.
What are the Best Ancillary Revenue Streams in Residential Settings?
If you have the right knowledge, identifying the right ancillary revenue streams for your residential building is significantly more straightforward.
With decades of experience in the US multifamily market and in UK BTR / PBSA, Fjeld Consulting has pinpointed the following as excellent additional sources of revenue:
Selling Premium Services
Tenants want an easy life, and modern conveniences such as fast broadband make that life a reality. But you should only offer premium services for an additional cost. If you make these offers as standard, it means:
- Pricing your units higher (potentially higher than competitors)
- Services will eventually become an operating expense that need to be cut
- You will have to give all tenants rent credit if a service goes down, as you aren’t providing them with what they’ve paid for
Selling services as a premium will bring in a steady flow of ancillary income, and through centralised purchasing, you can actually offer these services to tenants at a lower rate than if they purchased them directly.
Extra Rental Opportunities
The vast majority of your income will come through renting apartments to tenants, but as we’ve already touched on, you have a lot more space to rent out than just individual units.
If you have an oversized function room, your space could be perfect for local networking events, especially if your development is:
- Easily accessible via car or public transport
- Close to train stations and hotels
- Near amenities such as bars and restaurants
- And you have staff on-hand who can help
You can also rent out roof space to telecommunication companies for their antennas, and you can rent out parking spaces — a huge bonus if you’re in or near a city centre.
Concierge services are becoming more of an expectation in developments, but it’s the different levels of service that can boost ancillary income.
As standard, you’ll often see a concierge:
- Organising and overseeing maintenance work in communal areas and individual units
- Arranging transport
- Working as a porter
- Acting as a deterrent to prevent unauthorised entry
- Helping to organise community events
- Assisting new residents to find their way around the building
- Accepting parcel deliveries for residents
But additional concierge services can be on offer as an added extra. Some popular examples include:
- Room cleaning
- Dog walking
- Pet feeding
- Moving & storage
If you can provide one company with a key portion of your development, it will result in a huge commission. Businesses like selling their services en masse because it cuts their own expenses and results in a big pay day for them, too.
As a few key examples, you could offer one insurance provider and one internet provider exclusive rights to serve your development. Those businesses would make a lot of money for one deal, tenants would benefit from lower prices, and your building would gain a share of the profits.
How Does Ancillary Income Boost Revenue in Practice?
We’re always looking for new ways to boost ancillary income in UK BTR and PBSA based on a property’s individual specifications. But all the methods above are tried and tested ways your development can start earning more money almost immediately.
For example, one of our clients tasked us with negotiating a best-in-class internet provision service for a 380-unit new build. But the developer also wanted to recoup the infrastructure capital without it affecting rent prices.
We created a tender document so potential providers for the development would give us prices for three different options:
- A non-exclusive marketing agreement that allowed multiple providers to service the building’s internet needs with referral fees and revenue shares being paid to the owner
- An exclusive marketing agreement, giving one provider the key position of full partner on the building’s internet with referral fees and revenue shares being paid to the owner
- An inclusive bulk internet service at 100MB billed to residents as a technology fee. Residents would then be given upgrade options of 300MB and 1000MB for appropriate costs and referral fees back to the owner
Our approach created over £50,000 per year in additional income for the client. How? We negotiated and executed a non-exclusive agreement that resulted in more than 40% revenue share to the owner. The internet speeds could be advertised at up to 1000MB, and free wifi in communal areas and the development’s office was included.
Boosting Ancillary Revenue the Easy Way
Fjeld Consulting’s experience in the US market stretches back decades, and it’s where we learned how to explore every available avenue to boost a development’s ancillary income.
Our proven track record ensures that we will create more profit for your building, so make sure to get in touch with us today and see how we can unlock the hidden potential in your development.