Why would they pay utilities?

Question

I'm supposed to take a look at an 8-unit building this weekend. For some reason, the current owner includes gas and electric in the rent, even though they're both separately metered for each unit. Is there any good reason (other than not knowing what they're doing) for anyone to do this?
Also, what would be involved, aside from convincing the tenants, redoing the leases, and lowering the rent x amount, in having the utility bills converted to the tenants names?

Michael Rossi · Answer

Dave, I'd do some serious research on the sub-metering. Is that legal in NY? Putting sub-metering on water lines is relatively easy and inexpensive. I don't know what type of meters are available for gas. However, sub-metering electric is going to be a project. Unless there is a main disconnect at the meter, you'll need to have the electric company shut off the power so that the sub-meters can be approved. Also, you'll need a building permit to have the work done. I don't know about NY, but in Ohio, a 4 unit building is considered commercial for the purposes of the building code. In Ohio, that means getting plans drawn up for almost everything and having a state-licensed commercial electrician do the work. Once the work is done, the city will have to inspect it before the electric company will turn it back on. All of this adds up! I'm just suggesting that you thoroughly look into it and carefully run the numbers to see if this deal makes sense. Good Luck, Mike

Dave Versch · Answer

I went to see this property today. The 8 units are contained in 2 separate buildings, and the buildings and all units are in amazingly great shape. The front building contains 4 1BR units and the rear building contains 4 2BR units. And each unit has central A/C, each with its own separate compressor thing (I'm obviously not an HVAC expert) outside behind the buildings! (I was stunned.) Anyway, as for the utilities, each unit has its own breaker box located in the unit. But there's only one electric meter in each of the two buildings that I could locate. And with regard to gas, each of the two buildings has its main gas line split into six branches down in the basement. Two of the branches go to the two hot water heaters per building, and then one branch to each of the four furnaces per building. So it looks like the only things I would need to do in order to start the tenants paying their own utils is to install sub-meters for both gas and electric for each unit. (I guess I'd be left paying for the gas that goes for the hot water.) Does this sound like it makes sense? Does anyone have any idea how much this would all cost? The property is located in central NY state. I keep thinking that I must be missing something somewhere, because it doesn't seem to me that it would take much work at all to do all this stuff, since all the gas lines and wiring are already in place, and I'm mystified as to why the current owner hasn't done it already. (I haven't spoken to the guy because I've been dealing solely with his property management company.)

Michael Rossi · Answer

What happens in New Jersey if a tenant has the gas and electric in their name and they don't pay the bill? Can the utility company come after the property owner? Do the utility companies shut them off promptly for non-payment or allow the deadbeat to not pay for months because they can ultimately force the owner to pay? You NEED to KNOW the answers to these questions. To convert the tenants to paying their own utilities, I would simply convert all new tenants to the self-pay system and convert any existing tenants as their leases expires. Assuming that all the tenants didn't just sign a lease yesterday, most of the leases will probably expire before heating season gets into full swing. In my experience, there is typically a lot of churn when a new owner takes over. Most of the inherited tenants will leave or need to be evicted in a relatively short period of time. The reason that occurs is that you are buying from a DESPERATE seller (if you've buying right) and therefore that seller has failed in their real estate business. Failed landlords will often attempt to fill their units with anyone that has cash and they obviously don't screen them properly. Mike

Dave Versch · Answer

Mike, This property is actually in upstate NY, but your point is well taken. Does anyone with NY experience know the answer to this? My thoughts exactly. Half of the tenants leases expire within the next 90 days. That definitely looks to be the case here. According to city records, they paid 740K for it in Jan.2006. It's listed now for 250K, and they did a ton of renovations to it besides.