Accounting for utility payments

I have been doing due diligence for properties available in my area based on the 50% rule and $100/door cash flow. What I cannot account for is the utilities. Some of the properties have separate utilities that the tenant pays but some of the properties have common utilities that the landlord pays. How do I account for the utilitites that I would have to pay as the landlord?

Edited: 06/26/2010 at 06:58AM

Diane Menke

Contractor · Philadelphia, Pennsylvania

184 posts
118 Influence

Icon_minipost Jan 16 '09, 10:10 PM

I don't have any rentals where we have to pay utilities. Thats on our tenants. We rent SFH's and the tenants have the utilities switched over in their names.

If you can change the systems to do that I would do it right away, since there is no insentive for them to concerve if you pay. For example if its gas heat in your name and electric in theirs, change it to electric heat.

Otherwise you should be able to get records of use for the properties/units from the utilities. Plan on 15-20% increase each year and build it into the rent.

Good luck
Diane

Edited: 06/26/2010 at 06:58AM

Fred S

Contractor · New Jersey

203 posts
9 Influence
1 Award

Icon_minipost Jan 16 '09, 10:29 PM

^even water?

Edited: 06/26/2010 at 06:58AM

Aly L

Real Estate Investor · Middletown, New Jersey

636 posts
2707 Influence
6 Awards

Icon_minipost Jan 17 '09, 03:41 AM

My tenant pays water/sewer, billed quarterly. She had to take a copy of the lease to the water/sewer company and fill out an application when she moved in. If she doesn't pay the bill, it's in her name, and they will shut her off. The lease states that's a cause for eviction. If I keep it in my name, they cannot shut it off.

Either way, if she doesn't pay it, they will put a lien against my house. That's how it works in Trenton, NJ.

Edited: 06/26/2010 at 06:58AM

Michael Rossi

Real Estate Investor · Ohio

4587 posts
14256 Influence
14 Awards

Icon_minipost Jan 17 '09, 05:40 AM

Terry,

Ideally, the tenants should pay all the utilities. However, many (if not most) apartment buildings have only one water service and therefore the landlord pays the water/sewer/trash. It's easy to call the water company and determine what that runs.

Under no circumstances will I buy a building that requires me to pay electric or gas. Tenants frequently act very irresponsibly! I have tenants right now that keep their apartments at 85 degrees and I frequently see tenants that will open windows during the middle of the winter. If you pay the heat, you will be paying for the idiots to have their doors and windows open on the coldest day of the winter!

Just say no!

Mike

Edited: 06/26/2010 at 06:58AM

Jon Holdman

Real Estate Investor · Denver, Colorado

11859 posts
75547 Influence
15 Awards

Icon_minipost Jan 17 '09, 07:44 AM

One thing to watch for is that water is often lienable. If the tenant doesn't pay, the water company can attach a lien to the property. I agree, tenants pay utilities.

In theory, rent should be lower if tenants pay utilities than if the landlord does. Not sure that's always the case, though, especially if the market is competitive.

It is possible to add billing systems to common utilities. RUBS or residential utility billback systems.

Edited: 06/26/2010 at 06:58AM

Jon Holdman, Flying Phoenix LLC