Starting Off in Multifamily

[Joseph Lyons]

First time poster, long time lurker!!!

My fiancé and I have just made our foray into small multifamily. We bought a 6 unit multifamily. 4 of the 6 units are occupied. All tenants are paying substantially less than market (average is ~750). One woman has lived there for 30 years. Another as lived there for 9 years. They each pay about $475/mo for 1 BR/1BA units. All units need fairly substantial cosmetic rehab.  

The landlord we'll be taking over for has all the tenants paying utilities differently, which has us a bit confused. Some pay electric only, landlord pays the rest. Some pay nothing. Some pay electric and gas and landlord pays the rest. All of the units have independent metering for gas/electric. Water has one meter. We have some stabilizing to do with all the units. 3/4 of the tenants are month to month. 

Our plan is to rehab the 2 vacant units before removing any paying tenants. Some money seems better than no money. Once these units are complete, we're hoping to offer them to the existing tenants at market rate, instead of just serving them notices of non-renewal and saying sayonara. However, we do want to have existing tenants start paying for their own utilities. Of course, the one that still has 5 months on her lease (which includes all utilities paid by landlord) doesn't apply here. I don't know if I need to write a new month to month lease for all these folks with the new guidelines or if I should just have them sign some sort of utility agreement? 

Even with the significant vacancy and low rents, our DSCR is ok. Cashflow will be tight until rehab is done and units filled, but I'm anxious to share more info about this project as we learn and grow in this space. Any input on any of the things I've discussed is greatly appreciated.