Multifamily Other Income Underwriting After the Fee Rules

Published October 25, 2026

In December 2025, the Federal Trade Commission (FTC) and the State of Colorado settled with one of the largest apartment managers in the country for $24M, over allegations that advertised rents omitted mandatory monthly fees, per a February 2026 Arnold & Porter advisory. Roughly eight weeks later, on January 30, 2026, the FTC sent a draft Advance Notice of Proposed Rulemaking (ANPRM) on fees charged to renters seeking long-term housing to the Office of Information and Regulatory Affairs, according to the same advisory. The ANPRM was published in the Federal Register on March 13, 2026, under the title "Rule on Unfair or Deceptive Rental Housing Fee Practices," with comments due April 13, 2026 — and among the options it asks about is requiring total rent, including all mandatory fees, to be disclosed wherever a rental price is quoted.

Most acquisition models carry the consequence of that in a single line called other income, trended at 3% a year alongside rent. That line is now at least three different things with three different risk profiles, and in several states one of them is no longer legally separable from rent at all.

Why Multifamily Other Income Underwriting Breaks in 2026

The structural problem is that other income has always been underwritten as a growth assumption when a meaningful share of it is a cost recovery and another share is a pricing decision that regulation may be taking away.

A model that grows the aggregate line at rent-growth parity is implicitly asserting three things at once: that utility recovery will hold as utility costs move, that mandatory fees can keep rising independent of the advertised rent, and that the fees being charged today remain chargeable. The first two are assumptions. The third is increasingly a legal question, and it is the one that a trailing 12-month statement (T-12) cannot answer, because the T-12 is a record of what was collected under the prior rules.

Multifamily other income underwriting that treats the line as one number also obscures where the money came from. A property collecting approximately 8% of gross potential rent in other income from measured utility recovery is a different asset from one collecting the same amount through mandatory amenity and technology fees, even though the two look identical at the Net Operating Income (NOI) line. The first is durable. The second is exposed to the statute, and the exposure may not be priced into the going-in cap rate.

The Fee Line Is Really Three Lines

Splitting the line is the whole exercise, and the split follows how each category behaves when the rules move rather than how the property management software groups it.

Cost recoveries. Utility reimbursement, whether direct-billed, submetered, or allocated through a ratio utility billing system. Economically this is an expense offset, not revenue, and underwriting it as a recovery ratio against the actual utility expense keeps it tied to the thing it recovers — the same discipline that applies to utility billbacks on the manufactured housing side.

Resident-elected income. Parking in a market where parking is optional, storage, pet rent, garage or carport upgrades. This is genuinely ancillary, priced by choice, and generally the most durable category because the resident is buying something identifiable.

Mandatory charges. Amenity fees, technology or media packages, trash or valet-trash fees billed to every unit, administrative charges. In a total-price state these are rent in substance, and the statutes are converting them into rent in form.

Only the first and third categories carry regulatory tail risk, and they are the two most commonly buried in the aggregate. These groupings are a framework rather than a reporting standard, so the actual mapping varies by operator and by chart of accounts.

What the Colorado Statute Does to a Pass-Through

Colorado House Bill 25-1090, codified at C.R.S. § 6-1-737 and effective January 1, 2026, is the most specific text available on the pass-through question. Per a December 2025 Holland & Knight alert, it bars a landlord from requiring a tenant to pay utilities above what the service provider charges for that unit, and permits one limited administrative fee of up to $10 a month or 2% of the bill, but not both.

That same alert describes a Colorado Attorney General memorandum dated November 24, 2025, setting out enforcement discretion for ratio utility billing: aggregate tenant billings may not exceed the property's total utility charges, no markup may exceed actual cost beyond the permitted fee, common-area and shared-facility utility costs must be excluded from tenant allocations, and the allocation method must be clearly disclosed in the lease. The alert notes the Attorney General said enforcement applies to leases entered into, renewed, or amended on or after January 1, 2026, and that a legislative fix was expected in the 2026 regular session.

For a model, the operative detail is the common-area exclusion. A property allocating total utility cost across occupied units has been recovering irrigation, corridor lighting, and clubhouse consumption from residents. Removing that from the allocation base does not reduce the expense — it reduces the recovery, and the gap lands in NOI. These provisions are new and actively being interpreted, so the specific treatment is worth confirming with local counsel rather than inferred from a neighboring state.

A Worked Example: Repricing the Line at Renewal

Example — illustrative. A 240-unit Class B property in a total-price state. Purchase price $43M at a going-in cap rate of roughly 5.75%, so year-one NOI of about $2.47M. Debt at 60% Loan-to-Value (LTV), $25.8M at 6.0%, 30-year amortization, for annual debt service near $1.86M. Other income on the seller's T-12 runs about $44 per unit per month, or roughly $127,000 a year, booked as one line.

Unbundled, the seller's figure is approximately $19 per unit in utility recovery, $13 in resident-elected parking and pet rent, and $12 in a mandatory technology-and-amenity package. Two adjustments follow. Common-area consumption, previously allocated to residents, is removed from the recovery base, costing roughly 15% of the utility line. And the mandatory package is folded into the advertised rent at renewal, where it competes against the comp set's quoted rents rather than sitting outside them, so roughly 30% of it is assumed absorbed rather than passed through.

An $18,600 reduction is less than 1% of NOI, which is why it rarely survives a first-pass model. Capitalized at the going-in rate it is close to $325,000 of value. On coverage, Debt Service Coverage Ratio (DSCR) moves from roughly 1.33x to about 1.32x — immaterial on its own, and the point is that it is immaterial on its own. The same reduction stacked on a tax reset and an insurance change is what moves a covenant, which is the argument for carrying each on its own schedule rather than inside a blended growth rate.

Unit counts, fee structures, recovery ratios, and absorption all vary substantially by market and operator, so these figures illustrate the mechanic rather than any particular deal.

The Diligence Questions a T-12 Cannot Answer

Three questions tend to separate a defensible other income assumption from a trended one, and none of them are answerable from the operating statement alone.

Which charges are mandatory for every unit, and are they inside or outside the quoted rent today? The answer determines whether a total-price statute converts them or eliminates them. Second, what does the lease actually disclose about the utility allocation method, and does the allocation base include common areas? A lease that is silent is a renewal-cycle problem in a disclosure state. Third, what share of the line is non-recurring — one-time application, administrative, and lease-break fees that scale with turnover rather than with occupancy, and that a stabilizing property may collect less of, not more.

Lender treatment is the fourth question and it sits outside the seller's documents entirely. Agency and balance-sheet underwriting generally derive other income from actual trailing collections rather than a pro forma, and the exclusions differ by program and are revised periodically, so confirming the current approach directly with the lender is the only reliable path. The exercise is the same normalization discipline that applies when turning a messy T-12 into an underwritable NOI anywhere else in the statement.

Where This Analysis Breaks

The regulatory risk may be smaller than it looks. A total-price statute changes how a charge is displayed, not whether the operator can collect the money, and in a market where every competitor faces the same disclosure rule, the mandatory fee could simply reappear inside quoted rent with little net loss. On that reading, the exposure is a one-time repricing at renewal rather than a permanent haircut, and it is already embedded in what assets trade for in affected states.

The counter-argument is narrower than it sounds, though. Folding a fee into advertised rent moves it from a line nobody shops to the line everybody shops, and in a soft submarket with elevated concessions, absorbing it is a real possibility. The magnitude of that absorption is not knowable from public data, which is precisely why it belongs in a sensitivity rather than in a base case.

There is also a timing argument against overweighting this. The FTC's rulemaking on rental housing fees is still at the advance-notice stage: the ANPRM's comment period closed April 13, 2026, per the Federal Register notice, and no proposed rule text had been published as of late October 2026. Under the FTC's consumer protection rulemaking procedures that leaves a proposed rule, another comment period, and a final rule between today and anything enforceable, and the Colorado Attorney General has signaled a legislative fix. A five-year hold may well see the perimeter redrawn more than once, in either direction. Underwriting to the most aggressive possible reading of a proposed rule is its own kind of error.

Finally, the line is small. On the illustrative deal above it is roughly 5% of NOI, and a 15% error on 5% of NOI is not what kills a deal. The case for the work is cumulative: other income is one of several lines carried at the seller's basis rather than the buyer's, in the same category as the year-two property tax reset and an insurance premium that resets at binding.

The Underwriting Takeaway

Other income deserves the treatment the expense side already gets: component lines, each with its own driver and its own sensitivity. Three things follow from that. Cost recoveries belong tied to the expense they recover, as a measured ratio rather than a modeled percentage. Mandatory fees are underwritten as rent, tested against the comp set's quoted rents rather than carried above them. And the non-recurring share deserves separating out, because it scales with turnover rather than with the stabilization the model is promising.

A $44-per-unit line trended at 3% is not an assumption so much as a placeholder. It happens to be a placeholder sitting on top of the one part of the revenue stack where the rules are being rewritten while the deal is underwritten.

UWmatic is an AI-powered underwriting platform built for multifamily and mobile home park investors. Break other income into cost recoveries, elected income, and mandatory fees, and see what repricing each does to NOI and coverage. Try the free underwriting calculator →

This analysis reflects current market interpretations as of the publication date and may evolve as new data becomes available. Figures cited are drawn from public sources including a February 2026 Arnold & Porter advisory on FTC rental fee enforcement and rulemaking, the FTC's March 2026 Federal Register advance notice on rental housing fee practices, a December 2025 Holland & Knight alert on Colorado House Bill 25-1090 and the Colorado Attorney General's November 2025 guidance, and an Entrata summary of 2025 state fee transparency legislation, and are subject to revision. Nothing in this post is investment advice; readers should conduct their own diligence and consult qualified professionals before making investment decisions.