Estimating Utilities

[Oren K.]

I am looking at a property that due to a variety of circumstances it does not have a lot of historical information available. This got me thinking about how to estimate gas, electrical etc. Yes, during the DD period, you can go to the utility companies and get the actual billings but in determining the value of the property and the price to offer, what do you put in?

Assuming landlord paid utilities: I have seen quite a range for gas, electrical and water/sewer costs.

Heating will be nearly the same year to year as you can not NOT heat part of the building. You are dependent on the weather and if your tenants leave their windows open because they are to warm.

Water will depends on how well you stay on top of maintenance (leaky taps and toilets) and if the building is more family oriented or adult oriented (i.e. How many people live in the unit).

Electrical, I think, is also pretty steady per unit and is higher with families then non-families (see water).

Also the age / efficiency of the property envelope, the age / efficiency of the boiler, the age / efficiency of the HW tank come into play. Finally and obviously a building 75% occupied will use less electrical and water then one 95% occupied.

Anyone care to share their 'rules' per unit or per sq ft for utilities?

[Jon Holdman]

In many places if you call the utility company they can give you historical data on a property.  They won't always give month by month details but you can usually get some data from them.

[Oren K.]

Jon - What's that saying; "it can't hurt to ask"

[Justin Knapp]

I personally haven't seen any hard and fast rules in my time. If you're facing a property with erratic utility pricing, typically that's a prior management lapse or deferred maintenance item that's gone unnoticed (or is trying to be slipped past the potential buyer); you can always save that for your negotiation. If the seller won't investigate/explain, there's the option of setting expense caps with the seller for the first year or two (where you set up an escrow account and he will pay for any amounts above an agreed upon cap - note that this wouldn't include water breaks or such that would fall under the watch of new management). If current management is paying the utilities and you plan to continue paying them, you can always include a section in new leases holding residents responsible for costs over a certain cap (could be based on average totals received from the utility companies).