New fourplex owner questions (utilities, rent, etc...)

[Brian Orr]

Hey BP family,

So I finally did it and made the jump into multi-family with my first 4plex closed today. I wanted to run the summary information here and get what feedback I could from all your experience. I've only purchased vacant SFHs before this. Any information and your time is greatly appreciated:

The rents are low, currently $420 (rural North Carolina) and market is near $500... All tenants on MTM lease

I will not raise the rent itself until April, giving them plenty of notice. I do not want to scare them away, nor force them away before winter. I do plan on raising it to $450 annual lease in April and to $500 by the next lease or with new tenants. But I do need to cut expenses drastically!

Water/sewer bill avg: $130/mth

Santitation: $95/mth

I was wondering if i should I individually meter? Cost is about $4000. Or maybe line item a water payment 1/4 of total on the lease above the rent? In the tenants head I'm thinking "they take baths, I don't" or "He has a baby pool in the yard, I'm not paying for that" 

Essentially I have the same question for sanitation. Currently 1 dumpster, but the company will provide 4 separate trash cans and setup the tenants on individual accounts. Or can I line item that too? My biggest fear with seperating utilities in both cases is if they don't pay, I get stuck with a monster water bill or with trash everywhere. But if I line item them, i'm essentially raising their cost of living by $40 and $25 for water and trash...

I'm also trying to figure out the best management solution. It's about 1.5 hours from me, and I plan to manage it myself (at least until I can get the rents up). But all of this management software is super expensive. I guess quickbooks and excel will have to do. But some tenants pay cash and I need to get that done with immediately.

Should I manage under a DBA or does that even matter? (It's owned in my LLC)

I wanted to ask about punch list items, should I open that door to them or am I asking for trouble? Maybe ask for 1 wish list repair or something and anything they've requested that hasn't been done yet

I'm setting up a welcome packet to have them all sign new applications, lease agreements, pet policies, lead paint, etc... And I'd like to have this all settled by mid-month to have them prepared for December or January utility changes.

As always, thanks BP!

[Michael Lee]

I would ask for a copy of the last 12 months of expenses (actual), a NY leases, the foundation condition, the major electrical/plumbing/HVAC, roofing condition, kitchen and appliances, bathroom(s), any heat reservoirs, any outside porches/patios/balconies, fireplace and chimney condition, window condition , exterior siding/brick condition, fencing.

[Account Closed]

You sound like you have it under control.  I'm impressed...a lot !!!

My husband and I owned 40 rental properties, mostly single family homes but some apartments and duplexes as well. 

On the apartment building, a 4plex, we paid the water bill, and told our tenants during the signing of the lease that if the water bill did start to go up then we would have to increase their rents to compensate for the extra water bill usage. 

Yes, they would say, but it wasn't my fault.  I only have two people living here and my neighbor has 3 people and washes clothes every day.  

I would tell them I understood, but there is no way to prove how much each person or family uses, so if you see someone washing there clothes everyday or their cars, or they have guests over using the washing machines then let me know and I will address the issue with them.  But if everyone denies it and the water bill goes up do to usage, then everyone will receive a rent increase. 

Now, if you are going to make the tenant pay their own water bills, then I would recommend you putting in separate meters, because there is no way to break it down how much usage each family uses.  How many times do they flush a toilet, (flush handle gets stuck and water continues to run in the bowl) wash clothes, guests come over and uses the wash machine, etc.  

Therefore, your problem with billing a tenant for a water bill not on their own water meter, is going to be hard to prove that they actually used that much water and so this presents a problem in court.  

I would go ahead and pay the water yourself, as I posted above, and include how much the water bill runs a month for you and divide it by how many apartments you have and have the rents included in your decision to charge what you need to for rents.  Then that way you don't feel, that you are paying for the water, when in actuality you did include the water usage in how much rent you decided to charge.

Once again, you can threaten to increase rents of water usage rises.  

If you are in an LLC then you have to register yourself as a LLC Company. DBA's are only for people who file their taxes under their real name. Being an LLC you will have a Federal ID Number.

For repairs, I always took photo's of the home just before they moved in.  I printed them out in color.  I gave them to the tenants to see as they viewed home before we went into the kitchen to sign the lease.  And in part of my lease agreement was a page along with the photo's of the home and how it looked the day they signed the lease and they signed that document.  

During the signing of the lease, I told them what I expected of them, and then I told them what they could expect from me, and that was that I would take care of their repairs in the order I received them, but it had to be in writing, and if it was emergency I wanted them to call me right away and I would take care of that emergency within 24 hours. 

To test me, and tenants like to do that, they would call me right away with some kind of repair.  I told them to put it in writing per my lecture to them when signing the lease and I would take care of it and I did.  When our handyman had a chance, he went over there and took care of them.  No matter how trivial the repair was, I took care of it right away to show good faith, because I knew the tenant was testing my promise to them.  They respected that and they told me so. 

Therefore, don't mention a  list.  Just tell them that if they have any repairs that  need to be made,  send it to you in WRITING.   EVERYTHING MUST BE IN WRITING...EVERYTHING YOU DO AND THEY DO.  And then keep your word.

Just a suggestion. 

Nancy Neville

[Nathan Gesner]

Personally, adding separate meters can be a heavy expense and not worth the return. My preference is to get an average for the utilities, add a 10% buffer for tenants that use excess, and then split it by the number of units.

Will the single person complain about being billed the same as a family of four? Maybe, but that doesn't matter. You explain the process up front and they accept it and rent from you or they reject it and rent from someone else.

You can also explain that each unit will actually save money. Why? Because every meter has to pay base fees. In my town, a tenant will pay about $50 in base fees and then the actual use of about $50 a month. If there is only one meter and one base fee, the tenant pays 1/4 the base fee ($17) and then actual use which saves them about $33 a month.

[Brian Orr]

@Nancy Neville @Nathan G. The dilemma here is that neighboring properties have higher rents AND the tenants pay utilities. Example $500/month and utilities separate with the city. If I raise the rent to cover water, I’m still below market and still absorbing the water essentially. Ideally I can eventually get to that 475-500 point for rent alone as well. What I woIkdnt be able to do Is get to 475-500 and raIse It hIgher to cover the water. UltImately I thInk It comes down to tryIng to retaIn tenants through the wInter at least vs losing them and beIng forced to reno and find new tenants december.

[Nathan Gesner]

I'm lost so let me give you a real-world example.

I am looking at one of my tenant bills right now. They pay $32.02 for water and waste water. $13 of that charge is a base fee, so they actually used $19.02 in water charges. If you have four units metered separately, each one of them will pay the $13 base fee and then their actual use.

If I have one meter serving all four units, that base fee of $13 is charged once, not four times. Then the actual use is charged on top of that ($19.02 per unit).

Base fee: $13

Use: $19.02 x 4 = $76.08

Base fee + actual use = $89.08

Divide total by 4 = $22.27

Each tenant would pay $22.27 whereas your neighboring tenants that are separately metered will be paying $32.02 for the same amount of water use.

Your numbers will obviously differ based on utility costs, base fees, number of units, etc.

Make sense?

[Andrew S.]

@Brian Orr Hi Brian, Congrats on your purchase! The first one is the hardest. All tenants will expect a rent increase when a new owner takes over. Assuming you don't go crazy, it will be a 'nuisance increase'. They may complain, but very few people would move out at the holidays over $25-$30. Their cost to move is a much bigger expense and the hassle this time of year really isn't worth it. Don't be afraid of them... and I know it's hard at the beginning. If you raise the rents and they threaten to move out, it's a negotiation. Best case, rents go up. Worst case, you stay the same. Check local laws and increase accordingly. Check with sanitation, they may have a smaller dumpster at half the price. Otherwise, try 2 big cans. If it is insufficient, you can go to 3. Submetering is expensive. You'll likely get a better return by blocking exterior spigots and switching to water saver toilets. Often the water authority offers rebates on replacing toilets with low flow efficient units so your cost is fairly small. Is the water bill from your building similar to the neighbors? Do you have onsite coin-op laundry for your tenants? Ours (also in a 4-plex) generates enough to cover the house electric bill and $20 towards the water bill. It's a convenience for the tenants, and a money maker for you. Feel free to PM if you'd like to discuss further. And again, congrats!

[Mike Wood]

@Brian Orr  Assuming that your cost to install separate water service is correct (it sounds low to me), your payback period would be pretty short, as you would be able to shift the water/sewage and trash bills to the tenants.  That would be a 18month payback period ($4000/($130+$95 per month=17.8months). After the pay back period, you just increased your annual income by ~$2700 per year.

Since the area has other units where the tenant pays for utilities, most renters wont be turned off by them paying for the water/sewage and trash.

While I agree with other that the total costs for water/sewage and trash will go up when separately metered, I would absolutely do the switch.   

My concern is your stated costs is way too low.  I would first check with the local water company to see how much adding one (1) meter is.  In my area, the cost to add a meter is in the $2200-$3300 range.  This does not include the cost to separate the water lines inside the building by a licensed plumber (required in my city).  So for me to take a 4plex with one (1) meter and turn it into 4 separate meters, the cost would be in the $10k range.

[Joe Splitrock]

@Brian Orr 

It is a bad idea to to have them get separate garbage service. They will just throw garbage in whatever can is easiest. What happens when there is extra garbage or someone puts a couch out? I would keep the dumpster or you are inviting trouble.

It doesn't make that you are saying similar properties cost around $556.25 ($500 rent plug their $56.25 in utility cost). That means you are currently $136 under market price which is 25% below market. One of two things is happening:

1. You really are that low and who cares if you raise it $136 starting next month. Assuming market rent is $556.25, why would they move if it costs the same everywhere else?

2. You are not below market rent. The lower rent is due to the location or quality of your property being inferior to the $556.25 properties. Raising rent in this case would drive all your tenants away.

I am not saying which it is, but hopefully you see my point either raise to market or accept you are at market.

[Brian Orr]

@Nathan Gesner yes, thank you for the math on that. OK so to maybe clarify, the neighbors are paying $500 rent + water + trash + electric etc... I think that it will take some time for me to get that without running away the current tenants. But I think that by separately metering the units, it will lower my expense and assign it to the tenants in literal form. If i just raise the rent $40 and say that's to offset water, I'm still just paying for the water because (based on comps) they should be paying the higher rent plus the water. 

I hope that makes sense, it's been a long day

[Brian Orr]

@Mike Wood Spoke with water and they charge $800 per meter all in. The plumber is about $400 per. being there's already 1 meter I just need to add 3 at $2400 and $1200 for plumber. I added the other $400 as an overage. Remember this is in rural NC. certainly not big city prices.

But thank you for your input, it's what I'm leaning towards. I was warned about the trash though, that if the tenants have to pay, they may decide not to. So for that may be best to line item into the rent. That way at least I know it's paid and will be picked up.

[Brian Orr]

@Joe Splitrock thanks Joe. that's right about what I figured for sanitation. My plan for bulk is that they have to schedule it with me. It's a $75 charge for bulk so I can't just let them decide when and where to do that in any case.

As for the rent, there's 12 other rentals on the block, a 4 plex and an 8 plex. all old tenants are at $420. Tenants went to $450 about 18 months ago. And in the last year the new tenants have been paying $500 according the neighboring owners... This unit is WAY under market which is the basis of my question. Essentially, do I try to carry these tenants into updated prices by making the updates to the building? Or keep them near where they are, maybe move up much slower without the improvements.

[Joe Splitrock]

Originally posted by @Brian Orr:

@Joe Splitrock thanks Joe. that's right about what I figured for sanitation. My plan for bulk is that they have to schedule it with me. It's a $75 charge for bulk so I can't just let them decide when and where to do that in any case.

As for the rent, there's 12 other rentals on the block, a 4 plex and an 8 plex. all old tenants are at $420. Tenants went to $450 about 18 months ago. And in the last year the new tenants have been paying $500 according the neighboring owners... This unit is WAY under market which is the basis of my question. Essentially, do I try to carry these tenants into updated prices by making the updates to the building? Or keep them near where they are, maybe move up much slower without the improvements.

It may sound rough, but just hit them with the full increase. Even if one or two move out, you can rerent at market rate. Having two vacancies may sound rough, but it is actually easier to rerent two at once, versus one at a time. 

[Peter Schuyler]

@Brian Orr

When I bought my first duplex I self-managed and used Cozy.co to collect rents and pretty much manage the communication with Tenants.  I used BP expense tracker for Tax purposes, both are FREE and it works well at low scale.

[Mary M.]

First, find your local multi family owners organization and go to whatever seminar they have about tenant/landlord laws. I would HIGHLY encourage this so you dont accidentally break the law. 

Second i use an online platform called www.tenanttech.com  very cost effective way to manage properties. It does not have an accounting function but it does do pretty much everything else and it is ridiculously inexpensive. 

[Brian Orr]

@Peter Schuyler i actually just cam across cozy and I think that's the way I'm going to go! Thank you!!

[Peter Schuyler]

Originally posted by @Brian Orr:

@Peter Schuyler i actually just cam across cozy and I think that's the way I'm going to go! Thank you!!

 This is another great resource for free from Cozy.co

https://www.landlordology.com/

[Patrick Soukup]

Ouch. An hour and a half away is so close but yet so far! The temptation is to manage it yourself, but how effective can you manage it being that far away?

Don't individually meter, build in a utility fee. That way you can market rent at "X" but then charge a utility fee separate from the rent. Silly marketing trick, but one that may get you that renter that sets your rent at their top search criteria.

Hemlane.com is a great resource for doing as much or as little of the management you'd like at a very reasonable price. Maybe all you need is someone to lease the property out, but from there want to collect rents and schedule vendors. It is pretty customizeable (or at least used to be) - I use AppFolio.

Good luck! BP is a great resource.

[Alex Franks]

@Brian Orr @Nancy Neville some of the best advice you gave here that I read from folks.

Brian I am all ears myself here


Alex

Originally posted by @Account Closed:

You sound like you have it under control.  I'm impressed...a lot !!!

My husband and I owned 40 rental properties, mostly single family homes but some apartments and duplexes as well. 

On the apartment building, a 4plex, we paid the water bill, and told our tenants during the signing of the lease that if the water bill did start to go up then we would have to increase their rents to compensate for the extra water bill usage. 

Yes, they would say, but it wasn't my fault.  I only have two people living here and my neighbor has 3 people and washes clothes every day.  

I would tell them I understood, but there is no way to prove how much each person or family uses, so if you see someone washing there clothes everyday or their cars, or they have guests over using the washing machines then let me know and I will address the issue with them.  But if everyone denies it and the water bill goes up do to usage, then everyone will receive a rent increase. 

Now, if you are going to make the tenant pay their own water bills, then I would recommend you putting in separate meters, because there is no way to break it down how much usage each family uses.  How many times do they flush a toilet, (flush handle gets stuck and water continues to run in the bowl) wash clothes, guests come over and uses the wash machine, etc.  

Therefore, your problem with billing a tenant for a water bill not on their own water meter, is going to be hard to prove that they actually used that much water and so this presents a problem in court.  

I would go ahead and pay the water yourself, as I posted above, and include how much the water bill runs a month for you and divide it by how many apartments you have and have the rents included in your decision to charge what you need to for rents.  Then that way you don't feel, that you are paying for the water, when in actuality you did include the water usage in how much rent you decided to charge.

Once again, you can threaten to increase rents of water usage rises.  

If you are in an LLC then you have to register yourself as a LLC Company. DBA's are only for people who file their taxes under their real name. Being an LLC you will have a Federal ID Number.

For repairs, I always took photo's of the home just before they moved in.  I printed them out in color.  I gave them to the tenants to see as they viewed home before we went into the kitchen to sign the lease.  And in part of my lease agreement was a page along with the photo's of the home and how it looked the day they signed the lease and they signed that document.  

During the signing of the lease, I told them what I expected of them, and then I told them what they could expect from me, and that was that I would take care of their repairs in the order I received them, but it had to be in writing, and if it was emergency I wanted them to call me right away and I would take care of that emergency within 24 hours. 

To test me, and tenants like to do that, they would call me right away with some kind of repair.  I told them to put it in writing per my lecture to them when signing the lease and I would take care of it and I did.  When our handyman had a chance, he went over there and took care of them.  No matter how trivial the repair was, I took care of it right away to show good faith, because I knew the tenant was testing my promise to them.  They respected that and they told me so. 

Therefore, don't mention a  list.  Just tell them that if they have any repairs that  need to be made,  send it to you in WRITING.   EVERYTHING MUST BE IN WRITING...EVERYTHING YOU DO AND THEY DO.  And then keep your word.

Just a suggestion. 

Nancy Neville

[Jim D.]

Don't spend the money to separately meter. Follow Joe's advice above; just take an average of the historical cost, divide it by 4, and next time you sign the lease let them know there's a $35/month payment for utilities. 

I do this on several properties that don't have separately meter water, gas, or electric, and have never had a single complaint. I actually think the tenants like the stability of the fixed utility payment.

[Laura Williams]

@Brian Orr So my ideas after reading your post. Don't ask for a repair list...it always leads to spending money. I might tell them you have a plumber/electrician coming and ask them if they have any issues with plumbing or electrical that need addressed. In my opinion those are safety issues that need to be fixed but the rest they can deal with lol. 

I wouldn't separate the utilities but I would try to save some water cost by adding a hot water circulating pump to the hot water heater...that basically makes it so when they turn on the hot water it's instantly hot instead of having to wait a minute for it to get hot....another benefit of the hot water circulating pump is that it helps prevent pipes from freezing in the winter, turn off the outside spigot so people can't steal water, have a plumber go through the 4 plex and look for leaks and replace any toilet flaps...replace any toilets that are water hogs. I would keep the dumpster ...it sounds like you have lower end tenants and my experience is they will not be neat/clean in putting the trash in the bins..in my case lead to getting violations from the city...a dumpster is much better in my opinion for multifamily but it might not hurt to shop around and see if you could get a better deal. I would also add building wifi ...I just did that and tenants loved it..especially if they are poor and can't afford the luxury...Cost $60/month and they can all get on and enjoy unlimited high speed. Then after doing that & adding the wifi I would raise the current tenants rent by a small amount ..maybe $25-35 and try to keep them....if/when they move out you'll have a turnover cost /loss of rents/rental leasing fees etc etc and just a paint and cleaning (especially if they've been there a while) is going to be expensive..So I would try hard to keep the current tenants especially if they are good and they pay on time. But if one does move out then I would start section 8ing that unit & eventually the whole building. I know in one town in Missouri you can get $560 a month for a one bedroom or $680 for a 2 bedroom ...which I would guess is probably around the same where you are? The 4K you were going to spend separating the meters I would spend getting your 4 plex section 8 ready and that would greatly increase your cashflow from what you're making now. 

Oh and another tip I would give you is to not let your property manager pay your water or common area bills for the building. My first property manager in KC his company once didn't pay the gas bill so the whole building didn't have hot water and the other time they didn't pay the water bill so the water got shut off. And they don't just turn those on once you pay..in my case it took several days-week for the utility companies to come out and turn them back on. It was a nightmare. I also had them once pay a gas bill (out of my funds of course) of $400 on a property that didn't even have gas. And this PM is supposedly one of the "good ones" on some of the BP list. Another issue my friend had with a different PM was that his water bill went from about $150/month to $700 a month and they just paid the bill without questioning it and they had a problem with the accounting  software and wasn't sending statements so he had a $700 water bill for 3-4 months they paid before  it was caught. Both these Property Managers were fired but I'm jaded and untrusting now lol 

[Sen A.]

@Brian Orr I would recommend finding a property manager especially with tenants already in place. You don’t want to deal with the headache of managing four doors from 1.5 hrs away. Also, at $500 rent my guess is that some of your tenants don’t have bank accounts and would not be able to pay rent through cozy.

[Michael Jones]

I know you may not agree but I have been through this same dilemma on every occasion when we have bought a four plex. 

My strategy is to go in and raise the rent on the first meeting once i have purchased. If the rent is at $420 and the market is at $500 guess who knows best that they have been getting a great deal? The tenant. When they heard the building was being sold they knew a rent increase was coming.

I would raise to $500 now with a 30 day notice.

Sure, some could move if they do not like it but they will not give you a notice then as they have no other place lined up.

I have purchased 6 four plexus in three years and raised the rent on the first meeting to any unit that was below market value. You want to guess how many tenants have moved out over the increase? You guessed it. Not a single one. Fair market value is still fair and they know it.

Do not wait six months because by then you will know that Jane cares for her sick mom and is having car trouble, Suzy's boyfriend is not paying child support and etc..........and it will be harder to raise then.

Just bite the bullet.

and if you raise all of the rents to market value then you do not have to worry about chopping up the water by percentages. It is covered in the rent. and you also do not have to worry about someone paying rent but then chasing them for a $40.00 water bill. 

on another note, I would have the dumpster picked up and bring in totes. Cheaper and you do not have to worry about couches being dumped into them or around them by non residents.

[Brian Orr]

@Laura Williams GREAT info! Thank you Laura

[Brian Orr]

@Michael Jones Wow, ok. There's so much conflicting information here, but I like your thought process and experience here. What are totes?

[Chris Shepard]

Sounds like there are a lot of good responses to this thread.  I will chime in as I just bought a 4 plex in March.

First thing I did was send out a 30 day notice letting the tenants know that I would be billing them back for utilities.  I used RUBS (ratio utility billing system) based on square footage.  This is what my property management company does.

2nd thing I did was give the tenants a 90 day notice that they need to sign my new lease (at a $200 increase) or move out.  3 of my tenants ended up  moving out and I renovated those units and raised rents from $800 to $1200.

It worked out very well in the end and I increased my rents from $3200 to $4600 in about 6 months.