Pay to split water meter? Or Surcharge tenants?

[Chinedu Akunne]

Analyzing some deals on ways to increase cash flow on multi-family properties...

One of such deals is a 5-plex, with one water meter. Current landlord pays about $60/unit/month on water, sewer and garbage. That's $300/month that could be cash flow. I would like to change that. I have two options...technically 3;

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A- Continue to pay $300/month (not really an option, lol)?

B- Pay ($3-4k) to split the water meters, and transfer the (water-sewer-garbage) bill, plus deposit to each tenant?

C- Surcharge the tenants $60/month. and absorb the occasional overage. But, pay $0 upfront to split the meters?

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B or C? 

As the new landlord, what would you do? Which received better by the tenants?

As a tenant, which would you rather? Keep in mind that option B also comes with a deposit to the utility company

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Thanks,

Chinedu

[Milton Rivera]

@Chinedu Akunne

I would target option B. A five-plex is technically commercial property (anything over four units is) and should be evaluated via cap rates. Cap rates being determined by total Net Operating Income, by lowering your expenses you, in essence, increase your NOI, therefore increasing the value of the property.

I can appreciate you being mindful of how the tenants will handle it, but in the long-term is your decision.  I believe the key element here is how you communicate it to the tenants.  You can give them a 60-90 day notice that this is going to happen and remind them every time rent is collected.  Keep them informed when the contractors will be out and how they should go about setting up their accounts with the utility providers.  Re-iterate this is a fair process and that now they will only pay for what they actually use.   

Good luck,