Increase Utilities, Rent or Both

[Soheil Zarrin]

I am buying a 4-plex and inherit the old tenants from the previous owner. The rents are below market price and include all the utilities except electricity (Water, Sewer, and Trash are included). The property has one meter for the water and just electricity is metered per unit.

Two tenants are paying $1500 and two pay $1600 and according to the 2019 expenses, utilities (water, sewer, trash) costed about $150 per month for the previous owner!!

Considering the fact that in my market, the comparable rent prices are between $1700-$1800 and in most cases, the landlord doesn't pay for the utilities.

I have three questions in this regard:

1) What is the best strategy to fix both rents and utilities without deterring and scaring the tenants?

2) If I decide to increase rent and exclude utilities at the same time; since it increases the payment of tenants above the "Rent Increase Cap"(%9.9), is it illegal? or utilities are not considered in "Rent Increase Cap" calculations?

3) If I decide to exclude utilities from rent price; since tenants have a shared Meter what is the best practice to calculate utilities for each tenant?

I appreciate your advice and thoughts in advance.

[Soheil Zarrin]

@Corby Goade

Thank you. You made a great point. I believe the $1700 is a fair market price for this property since the for similar units in this neighborhood, the Median and Average rents are $1773 and $1825 respectively.

In the first few months of ownership, I want to be discreet in my interactions with the tenants as it may result in unit vacancies during the period that my cash flow is recovering from the closing and initial repair costs.