When an operating business receives 95% of its income from one source (rents), two characteristics emerge as an integral part of that business’s operation. They are: (1) the size and number of income increases that can be initiated are limited, and (2) the operation of the business is market driven versus management driven. In addition, when the number of clients for the business is defined and limited as it is in residential income property, the possibility of these two characteristics becoming a reality is almost a certainty.

The question that needs to be asked is “Should the categories in Figure 1 be the only categories identified? Because a heading for Gross Potential Rent already exists, wouldn’t a heading for Gross Potential Other Income be an appropriate addition? What would happen if the financial people developed an income section of the P&L similar to the one illustrated in Figure 2:

This kind of income section would force management to do four things, all of which would be beneficial to the investment success of the property. They are (1) to determine the spending habits of the residents, (2) to find goods and services that can be offered to the residents, (3) to develop a business plan for instituting the sale of those goods and services selected, and (4) to develop a marketing plan to sell those goods and services to the residents.

These four activities represent the beginning of change in the business model for residential income property. They are the first steps toward providing a viable operating business in our changing world. AITR gives management more control versus the ups and downs of a market driven business. Operations would be less volatile, and the property would be in a better position to meet its future funding requirements through more efficient capital raising sources. Imagine all of this happening because some financial people took the initiative to change the income section of residential income property’s P&L statement.

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