Found a rental property I like, but utilities aren't separate.

[Jeremy Chaser]

Hi all,

I'm curious what more seasoned investors might think about this unit. I've been trying to find a good rental property to invest in for a while now and finally found one that I generally like - it's a fourplex, all 4 units have been renovated to a standard that I believe would make them desirable on the market, and it's in a good location. It's also priced well ($175k), and I believe could realistically bring in $600/mo per unit or $2,400 gross. If I included utilities, probably ~$800/mo or $3,200 gross.

My main concern with it is that it has one furnace to heat the entire place, one electrical panel, one water meter, etc. I'm just not comfortable paying for tenant heat and electric, especially in Minnesota where people will absolutely run an electric heater 24/7 if they don't think the landlord keeps it warm enough. I just see it as a disaster waiting to happen.

My initial thoughts are this - separate out the electrical per unit. I would need to get a quote on this, but I contacted my electrical company and they told me it could cost anywhere from $1,500 - $4,000 per unit depending on how the wiring is. I would need 5 of them, including a common area. 

I could then convert each unit to electric heating - while not ideal in terms of efficiency, this would be a very cost-effective way to separate out heat. I'm handy enough with electrical work that I could feasibly install electric heating systems for probably <$200/unit. Each unit is fairly small (500 sq ft) and could likely be heated with one fan/heater system. I could then keep the furnace as a backup to only come on in case a heating system fails or something of that nature.

My only concern then is shared water. I don't foresee this being a big issue, but I could see someone neglecting a running toilet because they aren't paying for it. Can anyone weigh in on this with their experience? Separating out the water isn't really an option because it just becomes too expensive at this point. Overall I'm hoping to negotiate with the seller to give me some kind of allowance to separate out the electrical. Thoughts? Thanks for any insight!

[Travis Sperr]

@Jeremy Chaser Numbers aside - looking only at what you listed as your concerns -

Sub metering water is actually the easiest item out of the concerns listed - I did this last year on a 3 unit property - the meters record the usage and send it out via an internet hot spot device. Accessing the lines could be challenging and could include some drywall repairs. 

The heat is the biggest concern to me here - electric (assuming baseboard) heat is the most efficient cost for you, that is going to create some hefty electric bills that will either require you to lower rents so that it is in market price/amenities or turn over could reflect the cost to heat. 

Also curious if this is zoned 4 units - the amount of government oversight in the Twin Cities and strict rent regulations, I am surprised it is ok to have 1 furnace.

Hope that helps.