Option 2 have them pay water and sewer.

Note water leak causing the damage has been stopped.

After about 6 months in I found out It had a foundation crack because water was coming in through the basement (wasn’t mentioned in inspection report).

Keep in mind, City of Toledo has Water/Sewer/Trash on the bill.  

Check your state laws closely before making the wrong call and getting into hot water.

In my area, to consider a room as bedroom, you need to have closet, either built-in or standalone (some Cities prefer built-in only), should have a  HVAC vent, but no water heater and no electrical panel in the room. 

Separating the utilites for electric, gas and water for each building to their own individual meters was quite the undertaking and more expense and time consuming than expected.

Upper/Lower ~ 1,000 sq fot per floor, plus basement storage/laundry and a large garage.moved into the lower Aug1.20% down, on effectively $125K... appraised then for $140K, more now (appreciation plus repairs)Bank gets* $728/mo  Upper tenant pays $755 (still well below market) ( insurance of ~ $59/mo and water $25/mo not escrowed)* i was paying $1000/mo all-in at my 1br ~ 550 sq foot apartment  rent/garage rent/insurance/utilities etc..**2**While i was under escrow on #1 my father had passed away.

New appliances, water heat & softener, roof (hail from 2018 got me a new one for under $1200). 

When I tried to push back the utility company said to prove it was a misreading, pay the balance or water would be shut offContractors/tenants - when I purchased the place it was occupied and then covid hit.