Need advice on 5-units multi-family: rent, utilities, etc

[Hoi L.]

Good day fellow members! My family started the REI pathway late 2021 and has closed on 2 SFH, 1 pending SFH, and one 5-unit multi-family house. Some details on the multi-unit located in Glenolden (SW suburb of Philadelphia):

Old (early 1900s), 2700 sq ft, converted to 5 units with 6 separate electric panels/meters

Only 1 gas meter, 1 gas hot water heater, 1 gas furnace heat (old fashioned water radiators)

Tenants on lease (month-to-month) have been there: 15 years, 11 years, 7 years, 2 years, 1 year

Tenants only pay electricity; current landlord/owner pays water/sewer/trash (standard for the area); heat and hot water (only 1 gas line and hot water heater).  With water bill usage that is outrageous (80g/person-daily; no laundry in house!), and monthly gas is >$200/month and water >$275/month.  Already planning to replace every old toilet in the home to newer low volume/high efficient models.

Their rents (two 1-bedrooms, two efficiencies (one definitely is easily converted to one bedroom), one 2-bedroom) are all under rented (currently $710-810/unit: market is $850-950 and higher per rent-o-meter)

Big question regarding rent: the tenants did not have rent increased for past 2 years (usually built in $10/yr), and I am planning to increase rent on 7/1/2022 by ~$50/unit (6-7%) after my acquisition on 3/28/2022.  Is this too much?  Do I need to justify with showing them the bills to water and gas?

Big question regarding utilities:

1. Should I also install electric tankless water heaters to each unit?  Or hire a plumber/electrician to separate the basement gas hot water heater to 5 separate electric hot water heaters?

2. Would changing out the gas stoves (4 out of 5 are gas) to electric be worth it?

3. Should I install community laundry to the basement?  The long-term (15 years) tenants asked about it and she says it would be the biggest improvement to the house, "Even if it is coin-operated, you would make it back in no time".

4. Is it worth separating out the gas line to 5-6 and let tenants take over the gas bill?

thanks for all and any advice-help

[Nathan Gesner]

Your costs for water and gas are not outrageous considering the number of occupants. 

Q: when you use Rentometer to determine rent rate, are you comparing that information with reality? Like Zillow estimates, any computer algorithm can be wildly inaccurate. You need to compare your units to similar apartments: size, layout, location, quality, and definitely pay attention to whether utilities are included. If a similar 1bed/1bath is renting for $750 and that does not include utilities, then you are way below market. 

Your utility is essentially $500 and you have five tenants. I would ensure they are paying market rates and at least $100 per unit for utility. In my efficiency units that include utilities, I charge a flat fee based on a single occupant; if two people occupy, I increase the rate $75 a month to cover the additional utilities. All of mine are rented by single people. :)

I would not pay the money to add more meters. Keep it simple, increase your rates to ensure the rent is at market and the utilities are covered on top of that. If that comes to $75 a month, just give the tenants notice 60 days in advance and see if they can handle it or they can move out and you can rent it to the next person. I don't ordinarily recommend small increases to avoid hurting someone's feelings. It's a business, you should charge fair market rates (or very close to them), and ensure your costs are covered and that you're profitable. If Landlords don't make a profit, there's no incentive, rentals would go away, and everything would belong to major corporations or the government, neither of which bodes well for society.