Deciding whether to separately meter water in a Multifamily

[Cassidy Burns]

Hi All,

I wanted to get a feed started regarding opinions on the pros and cons of taking a multifamily building, in my case 4 units, that is currently on one water line and separating each individual unit.  The current owner is paying the water bill each month (2016 Expenses: $1,440).  I called the local water company and he quoted me around $4,000 to add all the meters but says it may take more construction than necessary, even requiring some walls to be taken down.  The building currently has 3 tenants, 1 vacant unit. 

My question is, are there specific more cost efficient ways to separate these?  Or would you leave it as is and when you take over the building, individually bill each unit for usage?  

Thanks in advance!

[Brent Neuenschwander]

I'm glad you posted this as I have been thinking about this too. We are closing on a 5 unit that has 1 water meter. I haven't taken the step of contacting water company yet to get an estimate on installing separate meters, but the little research I did seems to jive with your ~ $4k number. Not sure of your specific market but to me it seems like a good investment. Spend the $4 - $5k and increase your NOI by $1,500. If your market cap rate is somewhere around 8 – 10%, you just increased the value of your asset by $15 - $19k, for a $5k cost. But I know you also have to consider how this would impact your rent. If you are passing that cost on to the tenants, will you be able to maintain the current rent? I wouldn't think it would be a deal breaker, you are probably talking somewhere around $30-$50/month passed on to the tenant, but I guess that's another thing to consider.