Any input on buying Multi with utilities that arent split?

Question

Hello fellow BPers, I am looking into buying a Tri-plex that doesn't have any of the utilities split up. The current landlord rents to a farmer who pays all rent and utilities for his 3 employees living in the apt. So for now it will be easy but when they decide to leave what is the best way to split up utilities? Go by square footage? Is it worth the trouble?

Bob H. · Answer

Splitting up the utilities certainly is far preferable. Making the tenants split the cost seems to be a second-best option, much better than paying the utilities yourself.

I don't know if the self-policing @Adrian S. suggested occurs in most situations, but you have a chance. Otherwise there's almost an incentive to waste energy and water.

When I was in college, my roommate and I rented the top floor of a two-story house. Three or four girls rented the first floor, and a couple of guys had the basement. We had to split the utilities 35%, 35% and 30%, with the basement getting that small break. The downstairs apartment had the thermostat for the whole place, but the girls kept leaving the windows open while the heat was on. My roommate and I conspired with the engineering students in the basement, who had the furnace. We installed another thermostat upstairs and ran a wire down a vent so the engineering guys could hook up our thermostat and disconnect the official one. The landlord eventually found out and probably wasn't happy, but we saved some money on the gas bill.

Colleen F. · Answer

What would it take to split them,  you need to figure that number and if the current market is similar to what you have now or if you will likely get separate rentals. If you already need to get an updated furnace that is the time to do it.  Also don't forget if you need to go from one type of heat to a different type like boiler to forced air assess whether it can be done.

@Pat L.

I need to know that trick rent for more when you change to them paying their own utilities, were they way below market or were the upgrades that good?

People like the landlord paying utilities but don't compare  the cost being included they just see your rental as being higher priced. I do have tenants on their own electric but in general it is the heat that will get you. Switching that will save a lot.

Pat L. · Answer

In the past we would buy them then split all utilities even water if we could. Consequently, our income margins were achievable without having to bump rents too high. But assessing the cost of the conversion is paramount esp if you have to contract it out. We don't.

Furthermore, the ultimate return on re-sale was always excellent.

I am currently working on an old Farm with 5 rental units converting each apartment so they will be responsible for their own heating costs & the return(s) will definitely be quite high.

One I just completed & it rented immediately for $250/mo more & they are now responsible for their own heat.

Kelly N. · Answer

We have done both- our first triplex had nothing split, and we plan to split the electric in the future.  When we do that we will put in electric heat for 2 units and add electric hot water heaters, then everything can be paid by the tenants except water.  In our area water isn't usually split unless it is a duplex, the cost is prohibitive.

The second triplex we bought had gas and electric split, but the tenants are only paying for their electric usage.  I suspect that this was because one of the units would be paying for the heat for the common area and for the gas used by the laundry room.  I plan to have the other 2 cover their own gas next time we renew, will be switching to an electric dryer when the gas dryer needs to be replaced, and will put that on the "house" account that we pay for.

The third one (quad) we just bought has gas and electric divided, but the landlord was paying for everything!  There was a new lease that started 2 weeks before we closed and they lowered the rent and now that tenant pays gas & electric, the other 3 are up in August and will be paying for gas and electric if they renew.

You should be able to call the utility company (I use the "landlord line" when I do this) and ask for the average bill for the last year.  I use this when we are making an offer on a property and when I am marketing a property to rent so that the incoming tenant has a clue what the utilities cost.

I find it is a selling feature when leasing the units with utilities included- especially the gas since people don't like to worry about what the winter heating bill might be.  I will be marketing my new apartments that don't include gas soon so we will see how that goes!

Kelly

Pat L. · Answer

Good point....we are a stones throw from one of the largest & most efficient hydro-electric plants/generators BUT most of it belongs to Canada or is sent south & we do not have any appreciable price advantage. In fact many high consumption industries eventually leave for that reason.

Several years ago we inherited a couple of old spinster tenants (14 years residency) that were paying large, but subsidized, NG heating bills, but only $500/month in rent. So we decided to upgrade their furnace & HW tank to high efficiency units. It's difficult to justify raising rents with such high heating costs. They also offered to pay us the difference if we installed central air which we did. I am sure the old window units they had were very in-efficient. They now pay $780/month rents without a complaint. We also bought them a new stove as their own was barely safe to operate & they were so appreciative.

Colleen F. · Answer

@Pat L.    I am sure the subsidy makes the difference there.  We have one bedrooms so it is a little different, mostly single occupants, although there are people with kids who come  by interested. The heat cost in our area would be higher I think but I have not calculated it per unit I will do that. Being in upstate NY you would not think that but it is all about utility cost in the area.  Electric is really pricey for us. I have a SF all electric so I have seen it firsthand.

To do separate heating isn't worth  it for our building so we are working on conservation and the building insulation which can also make a difference. That is something I forgot to mention.

Pat L. · Answer

no tricks...not below mkt rent but an excellent school district, with low rental availability. didn't have to advertise as they go very fast...

units here on full electric including heat & window a/c units average $100/month budget billing.& they all get guvt subsidies for heat.but if landlord pays = no subsidies.

Colleen F. · Answer

Adrian Smude

The utilities are an expense so they are deducted off your income like any expense.  If you pay think LED, water saving toilets, thermostats with upper limits.  Also check for water leaks, limit outside faucets.  RUBs is a possibility ,  check in your state if it is possible.

Adrian Smude · Answer

@Colleen F.Thanks for the comments.  The water in my city that I'm looking in is crazy expensive.  My wife and I have all precautions in place for saving water and care about it because we attempt to be green.  With that said our water is $80 if we are NOT watering our yard, as high as $180 when we have to water a few times a week.  This is one reason I'm focusing on this before investigating any further into the property.  Chances are I focus my rentals in the town next door which has the cheapest utilities in the state.

Adrian Smude · Answer

@Bradley GibsonI'm investigating the same things right now.  A triplex I'm looking at has two electric meters and 1 water.  It use to be a quad.  I've heard multifamily owners around here say more people are using a rub system for water and it just gets split evenly between the tenants.  Lowers the water bill and they kind of police each other for not wasting water. I'm not sure if this would cause more problems and if it's doable with electric as well.  If you are stuck paying them I would assume the utilities would be a tax deduction?

Any input on buying Multi with utilities that arent split?

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