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Updated about 6 years ago, 11/10/2018
New fourplex owner questions (utilities, rent, etc...)
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!
Thanks for the recommendation @Peter Schuyler
A tote is a two wheel garbage tote supplied by most trash companies. We remove dumpsters when we by a multi family property and replace with these. A dumpster is usually around $100 a month on the low end and the totes are around $15.00 per month. So four a four plex with each unit having a tote you can go from $100 down to $60.00.
A lot of different views. There in lies the challenge. If you ask 100 people how to do this business you will probably get about 300 different answers. And it may be that all are correct. Everyone has their own reasons and styles for how they handle challenges.
My two cents worth is to keep it simple for yourself and your tenants. That is why I am in favor of just raising the rents and letting the tenant deal with it. If i chopped up utilities and it went from 420 to 500 they are going to be shelling out the same dollars anyway so the threat of them moving has not changed.
And another thought, when I bought my first four plex my biggest concerns were collecting the rent ( that is still my number one priority) and not losing a tenant. I have learned as I became more seasoned that tenants are going to move on at different times and that I should never behave or react in a way that would be different if I knew they were not going to move out. Just do whats right and if the tenant has an issue just fix it and the tenants will stay more loyal for that reason than cheap rent.
And the best advice I have ever received was "drive just as fast to a property to fix an issues as you drive when you know they have rent waiting for you and you will always have good tenants"
I am really interested to see folks suggesting rent increases and utility billing without (possibly) knowing the local rent laws.
Also, if you have good tenants - ie they pay on time and dont cause issues - why would you boot them out and bring an unknown in?
I guess i am a bit surprised at how cavalier some folks are to the effects on the lives of others with some of these decisions and how good will is an important business concept.
Agreed on NOT sub metering. It is not worth the cost, especially for such a small complex. MIGHT be worth it on much larger properties. Implement RUBS (you will need an addendum for your lease as well.) ALSO! Be careful and check your state law, for example, in Oregon (I think this is common) you can not MAKE money on this, so you need to actually collect LESS than the actual bills. Be careful and look at your state laws regarding this.
@Michael Jones are you able to raise rents as new owner if the current tenants have a one-year lease? Anyone know the law for this in NC?
@Chris Shepard great input, thank you! Where can I confirm if rent can be raised, like you did, in the state of NC?
You always want to consult with a lawyer or do the research rather than take my or any ones word for legal advice.
With that being said, a little research online says NC state law is a seven day notice to increase rent under a month to month lease. However, I would still give a 30 day notice just as a courtesy so they have a full month to adjust spending or move if they can not afford the increase.
If the tenant is under a lease that is not month to month then an increase can not be passed to the tenant unless there is a provision in the lease that allows for a rent increase. So if you purchase a property and a tenant is under lease and the lease says nothing about a rent increase you can not increase under the end of that lease.
Again, just my understanding and I am not an attorney.
You definitely want to connect with your local landlord association. The apartment association in Portland sells forms that we use and they pay lawyers to update their forms when the laws change.
Here are NC associations that should be helpful.
http://rhol.com/rental/NC/ncassoc.asp
Go to one of the meet ups and someone there will be able to assist you.
Thanks @Artie Wrightson and @Chris Shepard I am doing that right now
I wrote this in a new post but I'll copy it here, hopefully y'all see it: https://www.biggerpockets.com/forums/52/topics/635...
....
Well I just met with all of the tenants individually, all of whom are on M2M. Early in the conversation I let them know I would not be accepting cash as the prior owner did. This alone was met with near rage about having to figure out an app or having to pay $1.60 extra for a money order or 2% at a cash deposit station... I never even got near the point of raising the rent $55/month, pet fees, no more smoking, etc... Needless to say I think I need to take another route.
The challenge here is getting the tenants to realize the old guard is out and new rules are in place. I'm willing to give them until jan 1 to enact the new policies and rates, but I know I'm being met with high resistance, and I fear they'll keep retreating back to "this wasn't how we used to do it".. I wanted to ask what you all thought of this plan:
I want to give notice of termination of the leases this week, effective move out December 31 (This is more than the 30 days required by NC law). With that, present them with a rental application for the new lease to begin jan 1 with all of the policies and rates and allow them the opportunity to choose to apply under new management.
Of course I hope they'd like to stay, but if not, the place could use some updating and I can likely get new tenants in at $500 once that's done.
It's 7am while I'm writing this, and I will check with my lawyer first, but nothing beats the BP feedback and experience.
Thanks in advance for your input!
In my opinion, it's easier to just add the water/sewer expense to rent. I cover water/sewer at my 80 unit and ended up dividing the bill among the units and labeled it as a rent increase. After that, I went through each unit and installed tamper proof aerators on all faucets, along with low flow shower heads. Within a month my water bill was cut by $1,500, which was nearly 50%.
Hey good luck with everything man.
My $0.02...The water issue is one all of us fret over, but you're probably just gonna end up biting the bullet. In my area, I was able to get new tenants to pay for their own trash...so that helped a little. I also went around my property and got rid of the water bibs. I have drought resistant landscaping, so I don't really wanna be paying for water balloon fights. I use a PM that gauges rents on a yearly basis, and increases every so often. I got really great tenants now, so temper your desire to maximize against the reliablity of great tenants.
@Artie Wrightson @Michael Jones These tenants are on M2M and the law here is 7 days notice for increase. Taking over a lease you have to honor their existing lease until it expires. The route I'm taking is I'm actually serving notice not to extend their m2m with 6 weeks notice. Then offering them an application to apply under the new rent rates and property rules... The choice is theirs to leave or stay. The rents are 20% below market easily without factoring the utilities we've been discussing. With the amount of drama i got from 1 tenant having to pay $1.60 for a money order, I'd imagine this problem should take care of itself that way