Purchase a house with a mother in law suite w/o sub-metering?

Question

Hello BP members!I am contemplating on purchasing a single family home that I will house hack. The property has an attached mother in law suite and an attached efficiency. The numbers look good (details below) but those numbers are based on the renters paying there own utilities. My question to you is, based on the numbers below, would any investor seriously consider purchasing this property knowing that this property is not sub-metered (electrical and water)? I would prefer to pass on the utilities to the renters but I know that sub-metering would require an upfront investment. Is this property too much of a hassle to submeter and is it worth it?$380,000 Cashflow $765 ROI 10.8% Rent $3,400 ($1600, $1000, $800) Rehab $40,0003/2 house with 1/1 mother in law suite and 1/1 efficiency. Both units have kitchens. Needs flooring throughout the house.I will add that the above numbers are based on us not living there. The property has been on the market for about 1 year and they have consistently dropped the price and I believe they would be willing to sell the house below their asking price.Thanks in advance for reading and responding to my posts. I very much appreciate your input.

JD Martin · Answer

First thing you need to find out, if you want to pursue this house, is if it is even possible to submeter the other units; many times efficiency and MIL suites are not legal in that zoning, so you're not going to get a permit to do it. Beyond that, it depends on how long you want to hold the units. New water taps run $1-5k depending on your municipality, plus your expenses on your side of the meter to separate the plumbing. Electricity you're probably around the same, so all in you might have $10-15k worth of costs breaking everything separate. Over 10 years that's not much expense, over 1 year it's pretty steep. If you don't do it, you'll probably have to pay all the utilities, all the time, because the renter of the big house is not going to want to pay the utilities of the other units.

John Underwood · Answer

@Frank Macias I agree with @JD Martin. If it is not possible or cost effective to add new meters then the renter of the main house is not going to want to pay everyone utilities. You could give them a break on rent but when the utilities run high they are going to blame it on the other units. Someone living in the smaller units are not going to care how much water and electricity they are using if it is a flat fee for them.

Jim D. · Answer

I think people greatly overestimate this problem. You don't need to go to the expense of sub-metering to recoup the utility costs. I have a few properties without certain utilities split, and it has been very easy to deal with. For example, a duplex with one gas meter and one furnace heating the whole house. I make sure the upstairs unit knows that they won't have their own thermostat, but that it will be always set at 72 (easy to get a thermostat that locks). The gas bill stays in my name on autopay. The long term average of gas cost is $120/month, so before tenants sign, I let them know the cost for gas will be a flat $60/month which they just pay to me. Have never had any issue with several properties like this for years. I always hear "if they're paying a flat rate they'll run the bill up", but it has never happened. What are they going to do, run the dryer for fun?

Jean H. · Answer

@Frank Macias I also bought a house that came with an inlaws quarters. The electricity was separate, but there's only one water bill for the two houses. I could have paid to submeter the water, but instead, I listed the inlaws quarters on Airbnb. Short term rental guests expect all the water and electricity (as well as lawn service, Wifi, etc.) to be included so I didn't have to put in money to submeter the water, and I make a lot more on short term rentals than long term rentals. It's easy to manage when you live in the main house, and if later, you want to move out, you'll know by then whether you want to Airbnb it all out or to submeter it and get long term renters. If you choose the long term rental route, I would agree that if you don't submeter the property, you'll have to pay for the water and electricity yourself and just raise their monthly rents accordingly (and you'll have to deal with the problem of them not caring if they have the heater on full blast and the windows open).

Matt K. · Answer

Another thing to mention is that a lot of times rents will be lower for these types of units. This gets even more complicated when you are having them all chip on utilities which would likely rely on you having to keep it in your name then splitting it up and billing back them. I have a house w/ unit above the garage, at first I was going to sub meter it (can't if I want to comply with zoning) then I was still going to do it and rent it out for x and house for y. When you factor in vacancy and potential for drama the small amount I'd make extra would be wiped out with a vacancy. So instead, I charge little extra but my property has lot more value... and it basically works out better.

JD Martin · Answer

Probably, although you want to check with your municipality and utility providers to be certain. Some places don't have prohibitions on having multiple meters or connection points, others do, and still others will require some kind of inspection to make sure you're not creating illegal residential units. Based on the fact that it's zoned single family, your best bet if you want to use the other units (not saying you should, or offering any legal advice here) is to just pay the utility bill on your own. Or, if you are bordering another zoning area, you could attempt to get the property rezoned, which will usually result in indifference or an uproar from the neighbors (there will be a "Rezoning" sign on your property before the hearing). You also run the risk that if the neighbors find out there's 3 renters in there, unrelated, they go to the city and complain. Probably hasn't happened before if the owner was one of the residents, like in the big house.

Robert Gati · Answer

Water has been tough to crack (I bought a submeter but it didn't work well), so I worked out a flat water fee with my tenant. I purchased Eyedro, and it has been great for electricity. I had to figure out which circuits from the breaker go to the mother-in-law suite, but once we got it set up, it's been pretty flawless. I just bill my tenant for their usage (Eyedro gives me a monthly report).For gas, we just divide the monthly bill based on the suite's square footage.

Jeremiah Quinn · Answer

I'd be interested to learn more about systems like Flo and Eyedro myself. I've seen people divide up the utility monthlies by a fraction (e.g. 50/50 or 33/67 depending on size of Mother-in-law), but I think tools that monitor individual usage of utilities could make life a lot simpler (ex: monitoring water use for Mother-in-law bathroom's shower, sinks in bathroom and shower, and electricity from MIL kitchen and lights/plugs etc.)

Adam Christopher Zaleski · Answer

Mother-in-law suites are typically legal, but they are not legally a completely separate dwelling. A mother-in-law suite is zoned as part of the main house. To protect yourself don't write language in the lease that describes the mother in law suite as being completely separate. Write the language as "renting a room of the main house with no kitchen privileges"

Robert Gati · Answer

I've been looking into sub-metering a home with a mother-in-law suite and experiencing similar difficulties right now. It's led me to discover home monitoring systems like Eyedro (for electricity) and Flo (for water), where you can see the individual usage for the mother-in-law suite. Does anyone have any experience with these type of systems? I was thinking about keeping the utilities bill in my name, and then calculating and billing each unit whatever the electric/water bill would be for them.