Owner Paying Utilities - Want to Change to Tenant Pays Utilities

[Will K]

I found what seems to be a pretty decent 4 unit 2br/1ba quad-plex with great numbers. Its listed at near 150k, but I think I could get that down to mid-$130k given that the property has been on the market for a while and has gone through a few price reductions. The properties are currently pulling in about $700 each and they’re all rented, with leases expiring within the next 4 months. It is an older property, but even figuring in a higher maintenance number and property management, the cash flow would be somewhere in the neighborhood of $10k+ a year.

The Catch: the real estate company that currently owns it tells me today that they property pays for all utilities. They send me a spreadsheet of the utilities, and utilities alone are averaging out to be close to $9,000 a year! This includes electric, gas, and water/sewage. This would almost completely wipe out my positive cash flow.

I looked on craigslist, and it looks like most other properties in this area charge at least gas and electric to the tenants (and charge similar or slightly higher rents). My question is, given that the leases are up soon, I want to try to reposition the property to 700/mo. with utilities not included. Given that the cash flow would barely be positive without this maneuver, what would some seasoned investor’s approach be to taking on this property? I figure even if I dropped rent to $650 and charged them for utilities, I would still be making more than the current situation.

As a small sidenote, I think it’s a poor approach from a social aspect to pay for tenant utilities. This gives them the mentality that "oh im not paying for it, ill leave the AC at 62 for 4 of the hottest months of the summer." If they have to foot the bill, I bet they'd be thinking twice about reckless utility wastage. Good for the environment, and your cash flow!