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Utilizing Gigafy for Increasing Cash Flows

If you have reviewed any of our most recent offerings you will have noticed that one of the ways we are adding value to our properties is by implementing a service called, Gigafy. Essentially the Gigafy service allows us to resell super-fast internet to our residents instead of them needing to go through the local major cable company for internet access.

How does Gigafy work?

The Gigafy company will install a direct, fiber internet connection into a central communication area on the property. The property itself will pay for this monthly fiber connection which typically costs between $1,400-$2,100 per month depending on how many users are active on the property.

Inside this central location, Gigafy installs a core router and core fiber switch for the incoming fiber internet connection. Then each of the buildings on the property will have a communications cabinet installed which will house the network POE (power over ethernet) switch. Each of these network switches are connected back to the central communication area via a fiber connection. Using fiber to connect the central communication area to the various network switches allows for consistent, super-fast speeds so there is very little reduction in speeds as the internet is extended throughout the property.

From each of the network switches located in each building, there are network cables that travel from this communications cabinet to each unit within the building (see figure 1) and terminated via a RJ45 wall port.

Figure 1

Inside each unit is a dual band wireless router (see figure 2) that is connected via the RJ45 port. This provides the resident with the option of connecting directly to the router or via the wireless internet.

Figure 2

Is there a monthly service charge?

Gigafy does charge a $15/month service fee for each active unit. This means that if a resident decides not to use the service then we are not paying the service fee on that unit.

This service includes support for residents via live chat, email, or they can call there toll-free service line for assistance. Gigafy also remotely monitors the equipment 24/7.

Gigafy also manages all of the billing and payments from residents so that the on-site management does not have to worry about this part. This includes all payment processing, accounting, and credit card merchant fees.

They also provide us access to their proprietary management portal software to monitor resident activity and also to turn on/off if needed.

All equipment is also under a two-year warranty, five-year labor warranty and Gigafy will onsite support as needed.

Why the resident would prefer Gigafy over the local cable company?

With most residents utilizing video streaming services like Netflix, Amazon Prime Video, Hulu, etc., they are already going to spend money on a high-speed internet connection. So, the key here is that the resident will not be spending more money on this service as they are already going to pay for this anyway. We would just rather them spend that money with us so the property can increase its cash flows.

Gigafy allows us to set the pricing for each tier of internet service (see figure 3 for an example.)

Figure 3

Since we can set the pricing, we are able to be a little cheaper than the local cable company and still provide the same level of speeds that they are currently offering. This allows us to allow the resident to save a little money so it is a no-brainer for the resident. We set our pricing $3-5/month cheaper to stay in-line with the local cable company.

Using the on-site Gigafy service will also allow the resident to immediately have access to the internet when the move in. There is no need for them to call to activate the service and have a service tech come out to install. They can simply login to the dual band router already installed in their unit to have immediately signup and access to the internet connection.

We provide a free 30-day trial so they can start using the service right away and also as an extra incentive to sign a lease with our property versus a competitor property that does not provide this service.

Savings in other areas for the property

Since the property is using Gigafy, which is essentially a fiber internet connection that we own, we save money on internet that is in the clubhouse, fitness center, pool, and other common areas.

Many times, we are paying 1-3 monthly internet fees for these areas which can now be completely eliminated.

Gigafy does not charge any monthly service fees for our property-used internet in these common areas which saves the property several hundred dollars a month.

Let’s review the economics

Gigafy touts a 80-90% utilization rate on their existing properties with their service. However, when we underwrite, we only include a 50% utilization rate to stay conservative.

Let’s take a 200-unit property of which only 100 of the units are using the service. The average profit (taking out the fiber and service fees) is about $50/mo/unit. The 100 active units will net the property an additional $5,000 in monthly cash flows.

This equates to a yearly cash flow increase of $60,000 per year and this is also the net increase in the NOI. When we go to exit this asset, the property will have a nice bump in value just from adding this service.

In a 4.5% cap rate market, the value increase will go up by $1.3mil+ just by adding this type of service ($60,000 / 0.045 = $1,333,333.33) so you can see the significant value of this service.

If we can get to the 90% utilization rate the economics look even better. This would be 160 units at $50/mo to provide a monthly increase in cash flow of $8,000. This would be a $96,000 annual increase and net NOI increase as well.

With 80% utilization this would increase the value of the property in the same 4.5% cap rate market by $2.13mil+ – this is exactly what we are aiming for even though we only underwrite for 50% utilization.

Adding the Gigafy service to our assets is one of the unique ways our group always tries to think outside-the-box when it comes to adding other income to increase the monthly income.