Investor · Jackson, WY · Member since 2016 · 13 posts · 2 votes
I've been looking to buy a multifamily in a new area that should have good numbers. A lot of the properties I'm looking at are close to a college and have a strong rental history. I'm finding places that are 100k and bring in 1400 in rent. I at first was very excited about these numbers especially if I could purchase the property for 85k to 90k. But, in this town the landlord seems to pay all the of the utilities which take away most of the cash flow along with high taxes. How do I put gas, and electric back on the tenants without loosing them? I spoke with a local realtor and he said that he sees a lot of tenants taking advantage of this especially in the winter. One property I was looking at had a $350 utility bill because of all the heat being used. How can I get creative with these types of properties to make them profitable?
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
10y
I had this same problem with my multifamily properties in Utah. Here is the big dilemma; If I made the tenants pay the heat, I had to lower the rent accordingly because they were some serious price shoppers. Ultimately what I learned was, I was buying properties, that had good numbers, but catered to pretty much loser tenants. And by that I mean people with crappy jobs, crappy income, were unreliable and not stable.
My advice - look for a different property class to invest in or make your offers based on paying the utilities and still getting the cash flow you're looking for. Just be aware that these types of properties only appeal to transient people; the type that are always in-between a job or in-between a relationship.
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
10y
Well, like I said, make the offer based on dealing with higher expenses and potentially higher turnover than a nicer multi where the tenants are actually responsible enough to handle opening a utility account in their own name.
Real Estate Agent · Logan, UT · Member since 2014 · 222 posts · 102 votes
10y
I have a property that has a gas bill higher than $350. Just because I write the check doesn't mean that I "pay" for the gas, I figure the cost before setting a price to rent the place out.
I wonder if you could offer tenants an "either or" scenario - where you offer lower rent if they will pay the utilities, or average out last year's utilities and add that to their rent payment. As far as saving the environment goes, tenants paying their own utility bill is extremely effective.
You can negotiate utilities in the lease. If leases are in place when you purchase the property, you are stuck with that arrangement until turnover. Good property management companies deal with this all the time and will know how to handle it in your target market. In my experience, always have tenants pay utilities even for lower rent.
Investor · Ogdensburg, WI · Member since 2016 · 273 posts · 351 votes
10y
Depending on the age and type of heating source.. You could possibly figure a high efficiency Boiler/Furnace upgrade into your offer. My experience I have saved between 30-50 percent in heating cost with the upgrade..
Real Estate Agent · Kitchener-Waterloo-Cambridge, Ontario · Member since 2013 · 408 posts · 90 votes
10y
I would always pass the puck to the tenants. People have a lot more sense when they pay out of pocket, if they don't pay utilities it's nothing for a tenant to leave the unit at 70+ degrees all day when working or leave electric heaters plugged in 24/7
There are thermostats you can put in that limit the heat from between 68-72, so the tenants don't crank it up.
Many years ago, we sub-rented a crappy office with utilities included. It was a horrible office.
The landlord always found us with an electric fire on during the winter. He would come into our office and be appalled at us sitting there in shorts and tshirts - during the winter. He demanded that we wear jumpers. He wasn't best pleased when he found the window open one day either (although by now - this was sport).
One day, he popped into our office, and put a thermometer on the wall. He was going to catch us running the office at 90F. 90F for us was just about right.
He turned his back, exited the office, and the thermometer went straight into a glass of water. Everytime he came down those stairs, we had more than enough warning to dry the thermometer, and put it back where he left it. He once wore slippers to get down the stairs, but his secretary called us before he made it to our door.
I agree with you Skyler. I'm looking to get a good enough deal on the property to be able put the utilities on the tenants even if I have to lower the rent a little bit. I'm hoping that most of the tenants are on a month to month so I could possibly fix up one unit at a time.
Rental Property Investor · Mineola, NY · Member since 2014 · 838 posts · 212 votes
10y
@Levi Caron First if the market supports it you shouldn't have a problem. 1 way to find this out is to call other properties and see if they are charging utilities to tenants. Another you want to do is phase it in to the property (for multifamily), don't just go out and charge 100% right to the tenants, phase it in over 1 year with rent increases.
Investor · San Jose, CA · Member since 2011 · 355 posts · 90 votes
10y
Assuming that these items are separately metered, this is really simple: The next time the lease comes up for renewal, tell them they need to put the utilities in their name and lower the rent an appropriate amount to compensate.
Sacramento, CA · Member since 2014 · 513 posts · 319 votes
10y
I would first invest in upgrades to conserve heat - thermostats that can't be readjusted by the tenants, inspect and seal gaps along windows and doorways, etc. If your tenants are on a current lease that includes utilities, you'll have to wait until it reverts to a month to month. When it does, you can do one of three things: raise the rent to compensate for included utility cost; draw up a new lease showing landlord no longer pays for electric and gas and transfer it out of your name ( If you go this route offer a small rent decrease to compensate); If tenants have low to moderate income, they may qualify for cash discount from company to help pay their bill. In Sacramento, both SMUD and PG&E have these. SMUDs program is called HEAP and PG&Es is called CARES. I keep applications on hand for this purpose; or, you can start fresh, by not renewing the lease and get new tenants in who are okay with paying their own utilities. I encourage all our owners to have any electric and gas accounts put in tenant's name and include water in that as well. Reason being it makes tenants accountable for their use and, if these services are provided by you in the lease you may be stuck paying them even when the tenant stops paying your rent.
Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes
10y
I'll just be blunt - only an idiot would give their tenants unmetered utilities. They WILL waste them, this is a known, proven fact! It doesn't matter how well sealed and insulated your unit is when they open the damn windows in December! I don't blame them at all, I would do the same thing. Fresh air and free heat, what's not to love about that? Light switches? Why do we need those? Just leave it on, I don't pay the light bill. My LL is cool like that...
A limited thermostat will do nothing. They can just plug in a space heater. Or ten. While the windows are still open!
Furthermore, if a tenant ever is not happy with you, (and this WILL happen if you are a landlord long enough) then the tenant can make an effort to waste your utilities, he could cost you thousands! I used to lease an industrial unit many years ago - the landlord was an idiot and always causing problems. Water was "free", so I left it running. All the time. It was like a fountain. I bet the water bill cost more than my rent did. And she deserved it, too. I personally know the city water charges in that city were ridiculously high.
So, what can you do about it? Add utilities plus the rent like everybody else. Or add a variable "heating charge". It MUST be variable such that you can charge the tenants when it goes over a certain threshold. How exactly you write this into your lease is a careful word game you have to play in order to stay within your state's laws.
NOTHING ELSE WILL BE SUCCESSFUL, I CAN GUARANTEE IT! Tenants waste utilities when not directly responsible for them, even those with the best intentions. Many tenants see the landlord as some greedy rich guy with so much cash stuffed in his pockets it's not worth his time to pickup that $100 bill he dropped. You are often the enemy, even if you are a really nice guy.