Solutions for submetering water in a multifamily

[Justin Dragon]

Good morning all,

I just secured my first triplex in the Hampton Roads, VA and am looking to optimize cash flow. Does anyone have any best practices to equitably charge tenants for water usage? Set up has 1 detached unit with its own water heater, and 2 attached units with two water heaters, one of which supplies water for both attached unit washing machines. I've looked briefly at submetering, but am not deeply knowledgeable, and also wanted to see if there are other creative solutions.

Thanks!

Justin

[Nathan Gesner]

Don't make it more complicated than it needs to be.

Water bills have a lot of "base fees" that never change. These fees are charged for every meter. If you have three tenants with their own meters, they would each be paying these base fees and their costs would be significantly higher.

As you can see in the example below, this rental has a monthly charge of $53 and $48 of that is base fees!

If I split this bill between three tenants, they would each pay $17.67 which 1/3 of just the base fees they would pay if they had their own meter.

My point is, you don't have to be very accurate when splitting utility bills because the tenants are benefiting from a shared meter.

Here's how I do it. Talk to the utility provider and get an average amount based on the past year of use. Let's say it comes to an average of $60 a month. Split that three ways among your tenants. You can make adjustments based on the size of the unit, number of occupants, or even the appliances (dishwasher, clothes washer, etc.) but that's usually not that important because the actual water usage is so cheap (only $5.20 in this example for a duplex with two tenants). After splitting the average price three ways, increase it 15% per person to cover excess use. In their lease, include a clause that says rent covers water use up to $X and anything above that may be passed on to the tenant. If a tenant lets their toilet run constantly and the bill jumps $100, then you should have a system for passing that on.

Long story short, it looks like this:

Monthly average: $60

Split three ways: $20 each

Add 15%: $23 (or round it up to $25)

Tenants are paying $25 a month which is not even half the base fees!

It's simple, it's inexpensive for the tenants, and you don't have to pay for an expensive sub-metering system, you don't have to read meters, and you don't have to calculate charges every month. Easy, peasy.