Multi-unit, Landlord paid utilities

[Adam Roberts]

From speaking with other landlords, I can see that all-inclusive rent has a somewhat negative connotation as there is little room for positive CF. There is also the risk that tenants abuse utilities knowing they will not be financially liable.

I am currently looking at investing in a tri-plex that has 2 meters, so the current landlord pays all utilities but his rents are a "bit" higher than market (i.e. not enough to recover costs unfortunately for him).

Does anyone have a positive experience to share with a landlord-paid utility situation?

Conversely, has anyone invested knowing they were going to immediately pay to re-wire with 1 meter per unit, and what was the general cost of this work?

[Bill Gulley]

Adam, costs can vary widely, depending on how the main, meterback, boxes and runs are set up and the capacity of the main line. If they can come off before the meterback to a new meter, here it's about 800 bucks (4 years ago). If you need a new drop it depends on the run and wire costs plus the utility company hooking it up or if an electrician can do it could be more. Just guessing I'd say 3k would be sufficient to bank on and worth every dime to get out of paying the bills. Had some work done on a commercial property in the DFW area and costs were in line with this area, basically increasing amps and a new box and runs a tad higher just over 2000, as it was a first hiring, not knowing contractors.

Best thing to do is to get a bid. I'd make my offer subject to that being checked out and receiving an acceptable bid not over a dollar amount. Absolutely would never pay tenant's utilities. :)

[Joel Owens]

Hi Adam,

Tri-plex is small so risk is not as big. When my clients buy big multifamily 50 units or more etc. the utilities are number one on the radar.

I would equate it to food and labor costs with running a restaurant as it is that important. When tenants do not pay for water they abuse it AND also they do not report water leaks (dripping faucets, toilet bowls running constantly, etc.). When they are footing the bill you are the first to know about any minor detail.

When I analyze a property if landlord pays water/sewer etc. I go 60% costs of gross expected income for an offer. If it's a really old building I go 65%. A seller will try and talk you out of the numbers but the numbers are true and do not listen to them as they are selling it off to you.

The landlord might have upped the market rent a little bit more to compensate for covering utilities but I bet the extra cost of the utility is far outweighing any extra rent they are covering. I would find out if the landlord covering utility is customary for the area?? If it is and you sub meter and try to charge them the tenants will go elsewhere. If paying utility is uncommon for the area then you have a building that just hasn't been converted yet.

[Kelly N.]

Hi Adam,

If the utilities aren't split and the landlord is paying, find out what the average bill was for the last year. It can be a pain, but they should give you the number. Then just make sure the rents cover the costs just like any other expense.

We have two triplexes, one with electric and gas separated out, the other is all on one meter, we pay the water on both. We can charge a little more for the 'all utilities included' units and I've found there is a great market for this. Lots of people really like not having to worry about a high gas bill in the winter. I have an addendum in the lease about installing window A/C units and charge by the month for the extra electricity they are using. For the triplex with the separate utilities, the first thing most prospective tenants ask is what the average utility bills are.

As far as which is more profitable- amazingly they have roughly the same cap rate! Obviously I'd pay a little more for a house if it already had separate meters, all else being equal.

Hope that helps,
Kelly