Split water for tenants to pay. Bump the rents too?

Question

Hi all,

So I bought a 4 plex last year in Lansing MI and didn't want to raise the rents due to covid and just starting out (since the 4 unit was my first multi). The rents were fairly under market value 600-700 while in todays market it's closer to 800-1000. I will be paying a few grand to split the water and plan on notifying the tenants 2 months prior to the signing of their new lease.

What I'm wondering is if I should also bump their rent the same year I am splitting their water. I don't want to be shifty money grabbing landlord but I feel like there's untapped potential that I want to get into. What would you do? I'm not thinking of adding much of a bump, maybe just 2-5%.

How early do you disclose to your tenants rent goes up at lease signing?

Thanks a million!

Joe Splitrock · Answer

Making them pay water is raising rent, because it raises the cost to live there. So if you do that and raise rent, just consider the total increase. You are better off saving the expense of splitting water and just raise their rents higher. Either way the tenants are paying water, whether you include it in rent or they pay it directly. This is a major misconception of splitting water. You think that it saves you money, but it just means rent has to be lower.Also be aware of other potential consequences of splitting water:- Every water bill has service charges, so four units on one bill costs less than four units on four bills. You may not care because the tenant is paying the bill, but it increases the cost to live in your unit. You may have been paying $50 for their share of water and now they are paying $60. - You will still be stuck paying the bill when you have vacancy. It may only be $20 a month, but you have to hassle with transferring the bill back into your name. If it fully disconnects, there is usually an extra charge for the tenant to restart service.- Some cities hold owners responsible for unpaid water bills. A tenant could move out owing the city hundreds of dollars and you are left paying it. By just paying it in the first place, you avoid a situation where they can not pay.- Some cities charge a tenant a deposit for water service. It may not be a big deal, but it is added move-in expense that could make it harder for a tenant to afford your place.- It becomes one other bill that you need to verify the tenants switched over when moving in. - If you are splitting water, make sure every unit has it's own water heater. If there is a common area washing machine, it also needs to be on a separate meter. This is to avoid charging people for water that is not plumbed to their unit. - Consider what your competition does. Your competition is not only other fourplex, but also apartment buildings. If they pay $900 rent at your place plus water, but an apartment down the street is $900 with water included, that makes you more expensive.

Corby Goade · Answer

Congrats! You just need to notify them in accordance with the existing leases and state laws- generally that's 30 days. If your market allows for the increase, then go right ahead. There's a difference between being a "money grubbing landlord" and running an ethical business. You aren't doing anyone any favors by not keeping up with market rents- your expenses will increase (taxes, insurance, etc) while market rents keep going up. If you don't keep up, in a few years you will reach critical mass and your tenants and you with both be in a bad spot. They will have to pay market rents somewhere else or accept a big bump from you- and they'll be really annoyed with you at that point- trust me, they won't be thanking you for all of those years of discounted rent.

Steven Foster Wilson · Answer

Typically my PM will ask 2 months prior to lease end if tenants want to renew, if their rents are under market she notifies them of a rent increase, if they cant afford it, we make plans to do a quick turn, list it, and get a full paying tenant ASAP. Also with the water, we've started charging $25/person/month instead of splitting.

Karl B. · Answer

Me personally - if I submetered the water I wouldn't raise any rents on an existing tenant unless they were a problem tenant who annoys me in one way or another.

Troy DeLong · Answer

Morning Joseph! I recommend always sending out a 60-day, 45-day, and 30-day notice to your tenants for lease renewals and/or rent increases. My recommendation, for your situation, would be to NOT raise the rent on your current tenants if they re-sign a new lease with you. Them paying for their own water will be enough of an 'increase' for you at the moment. Then, next year is when I would start to raise rent on them ($20-$30/month more). A rent increase (along with paying their own water now) and you could lose that tenant and easily have that unit vacant for 1-2 months. That vacancy time will kill any and all 'rent-increase income'. If your current tenants don't want to renew a lease, then I would definitely raise rents to match closer to market value. Again, this is simply what I would do. There are many ways you could go about this. Hope it helps!

Account Closed · Answer

@Steven WilsonI think I'll be doing just that Steven, I'll notify them of the rent bump this weekend. Have you had any issues with getting a tenant to leave with the eviction moratorium still being around? I'd rather have a lower paying tenant than someone I'd have to evict to then turn the unit. Water was already split but only had one meter that I was paying. The cost of the split will payed for after 8 months of tenants paying for water.

Account Closed · Answer

Yes I am around 2 months away and hope to notify the tenants this weekend by email. Do you think I should also mail them all letters? Yeah, I don't think an additional 20$ a month from these tenants AND a water bump is asking too much from them. You're exactly right Corby by expenses going up and they won't be stopping anytime soon I'm sure. I I'd rather have a slow annual rent bump than a mad tenant at me in a few years down the road. I really appreciate your comments. Thanks for looking out for me and my tenants :)

Jezelle John · Answer

@Joseph O'KrayI love that you are splitting the water! I literally just missed out on a side-by-side duplex that I made an offer on and it was also my intent to split the water. I would hold off on raising the rent since your tenants now have to “get accustomed” to paying for their own water. (I once had a tenant let her faucet run so her cat could play with the water while they were out $$$$ out of my pocket especially when they stopped paying rent.) People think twice about things that will cost them money. But you also don’t want to lose good tenants.

Steven Foster Wilson · Answer

Just a general charge for water, the nice thing is, is it makes it appear like much higher rent if you happen to refi or sell.

Tracy Minick · Answer

So much good information here. My recommendation, would be to NOT raise the rent on your current tenants if they re-sign a new lease with you and at the same time implementing RUBS (ratio utility billing....charging tenants for their use based on head count). Next year you could start to raise rent on them as the market dictates. A rent increase with RUBS for could lead to a vacant unit and that would completely defeat your purposes. Here is a link to the post I made earlier this week on the cost of losing a tenant :)https://www.biggerpockets.com/...