Internet revenue is fast becoming the new ancillary income for multifamily apartment owners. Many apartment owners have known for years that Internet is one of; if not the most important amenities prospective residents are looking for. What may not have been so intuitive is how many Internet choices are available to property owners that were not in the market place until now. Additionally, they may not realize all the new business opportunities that are now available by maximizing the “Internet Real Estate” they own.
What’s the Current Market Place Like?
Up to this point it has been common place to allow the “Big-Box Internet” companies to provide antiquated infrastructure and services to residents. In some cases the property owners are even incentivized to “push” or market the services for financial gain. Although this model has been the norm for years in the multifamily industry, it has fundamentally disregarded huge advances in technology, namely ones dealing with Internet delivery. Compounding this issue are the huge amounts of profit left on the table by property owners. The current model enables monopolistic “Big Box Internet” providers to offer inferior services while making a majority of the revenue from YOUR residents. Unfortunately, there are no good reasons for this mentality to change. They will go on offering inferior residential services for astronomical prices mainly because it makes financial sense FOR THEM. Think about it…Why cannibalize your billion dollar infrastructure with upgrades, when there is really no push-back from the marketplace to do so? When you think about it this way, there is NO incentive to offer anything other than the status quo, which has been to offer inferior, “dirty” Internet services backed by horrible customer support. In fact, the big “ISPs received the lowest customer satisfaction ranking of any industry in America.”
Do Your Residents Even Demand Better Internet?
Make no mistake, your residents are not happy with this arrangement, they are not happy with the local Internet providers and they demand better Internet. In fact many residents have moved from an apartment once in their lives because of poor Internet and/or a limited number of quality choices. It’s a fact that you are currently losing residents if you only offer residential DSL (Internet through the phone lines). Moreover, if you have a cable Internet provider on property then you may be fortunate enough to be maintaining a status-quo. A premier fiber or WiFi service has the distinct possibility of significantly increasing occupancy by setting your property apart from your local competition, if done correctly. The Fiber to the Home (FTTH) Council released a study showing that access to fiber-delivered Internet raises rental values by up to 8 percent, and purchase prices of condos by 2.8 percent.
What Type of Internet Do Your Resident’s Demand?
Given that your residents are not happy with their current choices, what are they looking for and what type of service would make a real difference in their overall satisfaction? This is an important question to ask, not simply to attract new residents, but to create higher retention and loyalty from your current ones. Simply said, they desire services that are a MATCH for their busy, mobile and always connected lifestyles. This means Internet that is fast, safe, mobile, affordable and easy to use. How to Set up a Multi-Family Internet service, that works can be a challenging endeavor and is easier said than done.
Are These Types of Internet Services Even Possible for My Apartment Building?
There are many of people that believe WiFi is an inferior Internet product, they would have plenty of evidence for this argument. Also, there are those who believe fiber services are too expensive; there is evidence for this as well. Lastly, most apartment owners are not aware of what Fiber and “Fiber Backed WiFi”, at an enterprise level, takes to implement, let alone how to find these services affordably in the market place. So the questions loom, “Is this type of Internet worthwhile from a technology perspective?” “Is it even doable from a financial outlook?” The answer to both of the questions is YES, if you know where to look.
What’s Really in It for You?
As a multifamily building owner you strive to provide the most value while having the greatest return on your investment. Good business and basic economics. Assume for a moment that it is technically and financially possible to provide your residents with cutting-edge fiber and/or a “Fiber Backed WiFi” solution. The most important concern for you then is, “Show Me The Money!” so without any further ado here are the 4 Ways that “Fiber Backed WiFi” for Apartments will Create Internet Income.
1) Increase in Monthly Income
First and perhaps the most obvious is the prospect of monthly recurring revenue. This concept has been around since the early days of Bulk Internet offerings. However, this largely has never caught on and it is certainly not a solid mainstay in the apartment industry. Why? I mean if you can generate profit from a service your residents already use then it should be a no brainer right? Yes if it’s a quality service that you are providing to your residents absolutely, but as we have already discussed, the “Big Box” services are anything but that, so of course it makes sense that bulk model has never taken off. You literally can’t pay property owners to buy the “Big Box” services.
Buying a bad service in bulk is the same as your residents buying it retail for themselves… a bad idea packed with complaints, except now it’s your brand on the line. So, not only have you decreased your brand by offering bad services, you have now added another problem “another toilet to deal with.” However, if you provide a cutting edge, premier service such as “Fiber Backed WiFi” to your residents, it turns the aforementioned back into a no-brainer. Keep in mind the importance of fiber and WiFi industry best practices like; a high quality infrastructure, enterprise equipment & security, guaranteed bandwidth, premier support, resident savings and lastly (for your sanity and success), a nicely packaged turn-key solution. If those Best Practices are implemented, then you know you’re giving your residents the purity of glacier water for less than they would pay for dirty city water. A truly superior Internet service will certainly be a luxury amenity. It will set your property apart and your resident’s will thank you for it.
2) Increase in Property Value
Multifamily investors are savvy; they know that a seemingly trivial amount of revenue per door can increase the resell value of their property exponentially. What many apartment owners may not see as clearly is the plethora of benefits that come with owning the Internet infrastructure. Besides being able to dictate the quality of services your residents receive; you are able to connect the property to the Internet of Things (IoT), allowing for a multitude of ancillary products to be implemented in a way that was never possible before. All this coupled with increased profits, expense write-off’s and the ability to depreciate the equipment converts the concept of providing residential Internet from a liability to an asset.
The overall salability and transferability of a WiFi network is often seen as an encumbrance because of the existing service agreements associated with any third party Internet Service Providers. Owning the system flips this concept upside down, it’s now seen as a benefit to have a highly functioning “Fiber Backed WiFi” system. A prospective buyer of the property will recognize the value of the amenity to the residents and will want to utilize the revenue stream after the purchase.
3) Increase in Retention, Loyalty and Satisfaction
At the end of the day residents that use an enterprise level “Fiber Backed WiFi” system will immediately experience the difference, perhaps most noticeably is the absence of issues and the high reliability of their connection. 81% of MDU residents said that having VERY HIGH SPEED and Reliable Internet was the most important amenity. Considering that fast, reliable Internet is the #1 desired amenity in the Multifamily Industry, it is likely that residents will think twice before moving. Further, don’t be surprise if you receive thank you letters and acknowledgments for the new system. Your residents will have additional evidence that you have their back and ultimately they will thank you with loyalty and retention.
4) Increased Draw and Appeal
What makes your property different? Why should I rent from you versus your competition?Offering something as simple as “Fiber to the Unit” has been proven to create marketing appeal and a “technology WOW factor”. This is especially true for your future business and millennial crowds.The FTTH Council study that showed fiber-delivered Internet raised rental values by up to 8 percent (link above) does not specifically reflect a more superior, mobile and enterprise safe ““Fiber Backed WiFi”” system, rather the simple curb appeal for a third party fiber base service. Expect a Property Wide WiFi solution to have even more appeal to potential residents than the vanilla FTTU more commonly being offered in the market place.
Profits vs. Revenue Share?
It has been long revered that if you can get the local “Big Box Internet” provider to foot the bill for the Infrastructure AND make a little extra revenue from a marketing agreement or a per door access fee, that you were doing pretty good. It however begs the question, why let someone drill for oil on your land in hopes to receive a small revenue share, when you can own, control and dictate the profits for yourself? As discussed earlier, allowing someone to offer “dirty city water” to your residents, EVEN if you make an ancillary profit from it, is counter intuitive and damaging to most multifamily brands. Therefore, it has the very real potential to cannibalize your primary business model, i.e “More Heads in Beds.” This trade-off has never been more glaring then now and will continue to get worse as the market shifts to premier Internet services for their residents.
Compare a Multifamily Investment to an Internet Investment?
A common metric that real estate investors use to evaluate a multifamily investment is Cash-On-Cash-Returns (COC). Fiber Backed, Property-Wide WiFi beats a multifamily investment handily in a side by side comparison. * This is intended for demonstration purposes and not intended as financial advice; consult your personal financial advisor before implementing.
Multi-Family Investment Example
Suppose an investor buys a 288 unit apartment for 40 million dollars. The Cap Rate is 5.3% and the Net Operating Income (NOI) is $2,120,000. Additionally, the Cash-On-Cash return for this example would be approximately 12.9%.
Property-Wide Wi-Fi Investment Example
Now suppose an investor has an apartment building with 288 units and the owner installs a Fiber Backed Property-Wide WiFi System for $216,696 (see full example below). Using the same Cap Rate for the investment and a projected NOI of $69,984, the Cash-On-Cash return for this example would be approximately 32%.
Clearly this is not as much of an Internet discussion as it is investment decision. How would you rather use your investment dollars/capital, into a 32% COC or a 12.9% COC? More intrinsically a savvy financial mind may also see the multiplier effect when you improve your primary investment with a smaller ancillary investment. That is to say, invest a few thousand dollars to insure a maximum return on your 40 million dollar investment. From this view it may look like a cheap supplemental insurance policy.
Looking at this investment from a property value perspective, using the same Cap rate of 5.3%, we would see a property value increase of over $4,500 per unit. Assuming the property value increase took a full year to realize, the property could then be resold with an added value of 6X the original infrastructure investment. Said another way, if these assumptions held true, a $216,696 investment would increase your property value by around $1.3 million.
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