Should I install seperate electricity meters?

Question

Hey,So I am looking at a 22 unit deal in Lakewood, WA. Going through the numbers I noticed that the building currently has one master meter for electricity, which the owner pays for out of pocket. Does anyone have experience with going from a single electric meter to multiple? It seems to me that the costs associated with this would be astronomically high? Would anyone recommend doing this as a value add play?Thanks in advance!Hans

Jeff Greenberg · Answer

Find out what is common in the market. If you are the only one charging for utilities it could be a hard sell. If some or many of the properties are having the tenants pay, then it may be a viable value add. Most likely you will have to lower the rents some when you first implement the change.

Jennifer Lee · Answer

I am not sure if electrical is the same as water meter. I have a 6 unit that had a "by-pass". One unit with a salon the previous owner puts on one meter bc they use a ton of water. the rest of the unit, is from one meter. They are separated but runs from one meter.So I had my plumber remove the by pass, and install separate meter for the 5 units. It was a cost I was willing to do. Good thing too, I found out the other units were paying for 50% of the the salon water. I am glad to hear that there is SUBMETER, that means the electrical wiring is going to the "right" place.I would definitely figure out the cost, but you can do it in stages. ---I am all for efficiency, I get the bill, I pay and I mail to tenant for reimbursement. I don't have time to go and figure out the ratio or check submeters.Maybe you can split them as they come vacant and upgrade the unit. That is what I did for another unit. You don't have to do everything all at once.I changed all the fuse panels at once to save the cost. but rewired each unit as they come vacant and upgrade the unit, and increased the rent.

Jeff Kehl · Answer

Simon Wold This is a pet peeve of mine because I've fallen for it before. Many people have read the same books/listened to the same gurus that say to look for properties where the owner pays the utilities and simply submeter them or charge the tenants on a ratio basis.The truth is, 90% of the time the current owners have read those same books and would have done that years ago if they could.There are several very real problems with separating utilities. 1) Physical/Cost - often the buildings will not accommodate it without tearing into the structure to rewire/repipe which is cost prohibitive.2) Market - sure, just bill the tenants for it on a ratio basis but guess what they can't afford it, or can find cheaper rent elsewhere 3) Legal - sometimes it's not allowed/implementing it involves a lot of regulatory compliance cost4) Administrative - there is actually work and cost involved in reading meters and billing for utility servicesDon't get me wrong, this is a valid strategy for value-add and I have used it successfully. It is just much rarer and harder to make work than people make it out to be.

Simon Wold · Answer

Thanks for the advice guys.Called the utility company and they mentioned that the building has sub meters for each unit. They bill the owner and the owner reads each meter every month and preforms a charge back on the tenants. The owner is saying they just pay the electricity and don't charge back to the tenants... this could be why he is getting $700/ month for a 1/1 when the average in the are is $635.Looking like a charge back was done in the past, but was unsuccessful...

Account Closed · Answer

"Even if it's expensive" needs to be qualified.If it's a good deal, installing submeters is certainly something to look at in the future. The deal should not hinge upon this.Ideally, you would get quotes on installing the submeters. Then take what you are spending on electricity across the whole job, subtract a portion for common area (hallways, exterior, etc.) and then capitalize the rest at your desired rate. That is what you can spend on submetering and not go backwards, so to speak.As Rosston states, though, simplicity does beg to have rents inclusive of the electricity consumption.

Samantha Klein · Answer

Simon Wold I almost certainly would seperate the meters if possible and pass the costs to the tenants even if it's expensive because you're just throwing money away paying the buildings electric, which tenants will leave lights, tvs, ect on all the time because they don't pay the bill.

Rosston Smith · Answer

Either change it and pass the cost to tenants, or charge extra on the rent and cover the expense.