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What is ancillary income?

Ancillary income is any income not including rent that you derive from the properties you manage. There is a lot of money to be made in ancillary income, but many property managers don’t even consider the wealth of opportunities to increase profit, grow your business, and increase the satisfaction of your residents that ancillary income opportunities provide. 

It may seem counterintuitive to suggest that a practice exists that will simultaneously increase the amount your residents pay and increase their satisfaction with you, but if you provide the right services, and your residents find value in them, you can build a winning situation for all involved parties

The Triple Win

The best way to sustainably drive ancillary income for you and your business is through concepts that achieve a triple win. A triple win, as described in this video, is any concept that manages to benefit the renter, you and your team of property managers, and the property owner. 

The importance of the triple win comes from the idea that long-term success that results in long-term profit must correlate with long-term satisfaction. Keeping all involved parties in a transaction satisfied will lead to high rates of re-signing, whereas ancillary income programs that residents don’t find value in can decrease renter satisfaction and hurt your bottom line in the long-term. 

Things that work

The residential real estate market is changing and by finding new ways to generate income, property managers can accelerate business growth. Ancillary income is one of those ways, and it works by providing real value to the resident. These programs don’t necessarily have to directly create revenue, although many do, but the key is always to create value. 

One example of a program that creates value for the resident without charging the resident is a Christmas gift program put by the Home River Group based out of Boise, Idaho. Residents at HRG’s properties receive a gift package every holiday season that includes gift cards to local restaurants, movie theaters, bowling alleys, etc. This comes at no charge to the resident, but it does create happy renters, which is a long-term benefit to your business. 

Another great example is 24/7 maintenance, which is often amenitized. Professional SFR managers have web portals, apps, 24/7 hotlines as part of their operations that enable a more professional and convenient resident experience. And it leads to faster resolution. Even though this may not be monetized by residents, including it in the resident benefits package helps communicate the difference in service so it is recognized and appreciated.

Convenience services are great examples of ancillary income programs that do drive immediate profit and achieve a triple win. Residents tend to realize a lot of value from convenience services, and these services have become the expectation for renters. Second Nature’s air filter delivery service, which is widely used by property managers around the country, achieves this by providing the resident with cleaner air to breathe and lower utility bills, providing the owner with the peace of mind of knowing the air filters are being changed on time, and providing you with some added ancillary revenue

A great way to identify opportunities for ancillary services that achieve a triple win is by asking your residents. Just ask them. They’ll tell you what services they’re interested in and willing to pay for. This will not only help you identify key insights for your business, but it has a positive side effect of improving the relationship you have with your residents.

Things that don’t work

As you can probably infer, programs that don’t work will be the ones that don’t achieve the aforementioned triple win. Property managers are starting to realize the value of the long-term game. The extra effort required to make sure residents feel respected and not leveraged specifically for profit creates a lot of value for the PM as it keeps renewal rates high. When your residents feel like they're just a warm body that pays rent, that's really going to sour the relationship that you need to be focused on here. Truthfully, ancillary income can be created very easily, but cheap money grabs that make residents feel used are not going to be sustainable, and sustainable is the key word here.

If the resident doesn’t see value, your program’s long-term prospects are not going to be good. Understanding where a resident will find value also requires you to understand how a resident perceives value. There is a saying in marketing that perception is reality, and whether or not you realize it, you're perpetually marketing your properties to residents. How they perceive their experience is going to affect how they feel when it's time to renew.

The best ancillary benefit package in the world is going to be perceived negatively if the messaging around it uses words with negative connotations. Avoiding words like “fees” can help prevent a negative perception of a service you as the property manager are providing. A perceived lack of value for a required program contributes to a resident that feels disrespected, and a perceived lack of value for an optional program results in a program nobody uses. Either way, no benefit to the resident means no benefit to you.