Rental License Failure - Creativity Needed

[Damian Komosa]

I have recently purchased my first multifamily property (house-hack), which is a Converted Quadplex on the Iowa side of the Quad Cities. To my surprise, it has failed a full rental license inspection due to one detail that I had never considered before. This detail is due to the fact that the singular electrical panel is located inside the basement unit of the Quadplex and all tenants must have access to the panel in emergency situations.

The options given to me by the inspectors were:

Option 1: Make the basement a general area, giving each tenant access

Cons: 

Loss revenue: $6500-7500 per year leading to the property negatively cash flowing.

Pros: 

My issue of creatively placing a communal laundry area would be remedied, saving me a one time project cost of about $5,000- 15,000. 

One less tenant to worry about.

The basement unit is the one that would be lowest priced, least desirable and most likely hardest to rent.

Option 2: Separately Meter the units

Cons:

Extremely expensive project costing multiple tens of thousands of dollars, with finished units throughout the house. This project would take many years to get my return on investment as the total rents of the full building would come out to approximately $2600 dollars a month.

Old construction meaning part of the wiring is extremely dated and would require replacement.

Pros:

Would allow all four units to be rented, allowing me to get full revenue potential of the property.

This would future- proof the house and provide peace of mind.

All the benefits of sub-metering, such as separate utility bills and marketability of property if I ever end up putting it for sale.

****Neither of these options currently seem ideal and I am wondering what innovative ideas people have used to remedy similar issues. Any ideas would be appreciated as this is my first long-term rental and even the Head of Community Development has not run into similar issues.***

Note: Currently in conversation with real estate attorney about anything that can be done using the rental contract to remedy the issue.

[Alex Bock]

Hey Damian, congrats on your purchase!

I think the ideal scenario here is to get power separated. As you say, it will increase the value of the property and you will not have to worry about this again. That said, a happy medium could be bypassing that panel and relocating it to another common area. If you don’t have any common areas, I know they use exterior panels down south pretty frequently. I’ve never seen one up here, but it could be an option. Best of luck!