Drop Energy Bills / Raise Rents

[Mario Brown]

I am repositioning an 8- Unit Apartment  (Photos Here )  In my analysis i knew that the property was being under rented & with capital & aesthetic improvements i could drastically raise the rents.  Rents are now up 60% on two of the units. 

What i did not think of was the extremely high power bills that these tenants & most low-income individuals live with and accept. $150 dollars a month for a 2 bedroom 900 sq. ft apartment is what my tenants in this building are averaging. 

My thought process is two fold...

The Altruistic Side Of Me

Lower Income Tenants without the education or awareness of the major changes in building codes and green product technology over the last 15 years, coupled with investors that are not financially motived to make improvements that don't have hard objective returns have left a large portion of our population paying more than 15% of their income toward utility bills. Not cool. 

The Business Side Of Me

Selfishly, a more energy efficient unit, allows me to charge more in rent...Wouldn't a tenant paying $600 a month in rent & $150 dollars for power, also pay $665 a month & $65 a month in power?  Unfortunately, most low-income renters think a $150/month power bill is "normal,"  so communicating the value is sometimes tough. However, there is definitely perceived value in a property with new appliances & new windows.  

There also has to be moderate, I am not deploying some of the awesome products that would make my home or your home a more efficient place. (e.g. nest thermostats, spray foam insulation, or one of Tesla's solar roof systems )  but adding some very basic products that this property was lacking. ( I think a lot of mom & pop C & D properties are in the same

• There was zero insulation in the attic ( Added R-38)
• Old Single Strength Wood Windows ( Replaced with low-e replacement windows)
• HVAC 12 Year Old 10 SEER ( Replaced w/ new 14 SEER HVAC)
• 12- 14 year old appliances ( Adding Energy Efficient Appliances )

Definitely the basics, but just making those improvements has definitely directly or indirectly (depends on how you look at it) impacted the NOI and the overall tenant experience. One tenant has gotten back to us, her $150.00 average power bill is now $65.00.  If i only raised rents by that amount, (85.00) over 8 units, i would be increasing value more than 125K

Maybe we classify it as a  "Reverse Utility Recapture" haha. Just my general thoughts, would love to hear some other feedback. 

[William Hochstedler]

We have found that high heating bills guarantee turnover.  One season of oppressive bills and you lose the tenant when the lease expires.  If it costs them too much to stay comfortable they leave.  And while they're there they complain to everyone they meet.

Turnovers are really hard on apartments.  You are renting to low income tenants who could conceivably stay in these units for decades.  Think of your savings on "normal wear and tear expenses" if you have a tenant that stays longer than the life expectancy of your carpet and paint.

On top of that, you have administrative expenses and a few days vacancy on every turn to factor in.

Get them in there at market and raise rents during renewal.

I wouldn't scrap the appliances until they die, but it's amazing to me that landlord's never seem to see the long term ROI on making their units energy efficient when there is absolutely an upside.