How do you deal with a 4 unit with one electric service

Question

I have a deal that the numbers make sense on, but it is a 4 unit with one electric/water meter. How would you handle this? How would a property manager handle this? What if one tenant uses more electricity than everyone else?

Drew Sygit · Answer

Hopefully you have a Class A or B building. WIth those, we've had very few issues splitting utility bills by bedroom count.

Class C tenants on the other hand, seem to be always looking for any excuse not to pay something. So, when trying to split utility bills, that they agreed to in their leases, we've had Class C tenants not pay claiming other unit(s):

1) Are using more of the utility then they are

2) Have more people

3) Are having family & friends over to wash their clothes

4) Wash their car

5) Etc...

When we've taken nonpaying tenants to court and included nonpaid split utilities in their past due balance, some judges have thrown out the utilities.

We still split utilities on multi-unit leases, but warn owners it may not be able to get tenants to pay.

Best bet is to separate when possible. Electric is the easist to separate as you can run wires just about anywhere.

Luciano A. · Answer

@Slade Sizemore

You have a few options. The more costly one is to separate the meters which will be a costly upfront cost but your cash flow will be more predictable. Otherwise what you can do is look at the last 12 to 24 months and average out what the electricity is and you can charge that to each tenant. In our Multifamily we use RUBS. There are companies that you can contact that can use their software to figure out how much each tenant should pay based on the number of bedrooms, the number of people, and I'm sure now they take under consideration if someone is working from home or not.

If you are going to work with a property management company you should reach out and see if they have any other units with the same thing and see how they handle it.

We took a 5 unit building that had one electric meter and one 40 gal water heater and separated them individually and had the tenants pay for their own utilities. We did not have anyone complain about having to pay for their own utilities.

Best of luck

Beau Watson · Answer

@Slade Sizemore

I am dealing with this while I house hack.

I called the electric/water company. Got the average for the house over the last twelve months. I then wrote in my lease a flat fee divided by the number of units for both water and electric. Heck, you probably will need to do the same for internet and trash as well.

Sometimes you will make a few dollars sometimes you will lose some. But it should wash out pretty good.

Good luck with the new purchase!

How do you deal with a 4 unit with one electric service

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