One of my biggest frustrations when it comes to multi-family investing (at least in my area) is the fact that the water bill must be in the name of the property owner.
From what I understand, this came about because it was easy for tenants to skip out on their water bill. The local municipality cannot turn the water off, so there is very little incentive for the tenant to actually pay the water bill, so several years ago they decided to force the property owner to pay the bill.
The Problems with Water Bills
I have been both a tenant and a landlord (as I would imagine most landlords have). When I was a tenant, I had 2 different situations. In one, my utilities were not included. In the other, they were included.
Utilities Not Included
The house that I rented during college did not have utilities included. It was a single family home and I had 4 roommates. As a result, a few things happened.
- We received a high utility bill during one winter. Given that we were poor college students, we decided as a house that we would drop our thermostat and instead wear an extra layer in the house.
- We also made sure to call in our meter readings so that we would be paying an accurate amount.
- We had to pay our final bill. If we didn’t, the utility company was going to come after us for it.
After college, my wife (then girlfriend) moved to Rochester and rented an 8-plex. This was an old building with a boiler heating system. Because the building was initially a single family home that was later split into a multi-family, the utilities had not been split. So the landlord paid all utilities and there was a single thermostat for the heating. As a result, a few things happened.
- We no longer thought about or cared about the utility bill. We paid our rent and that was it.
- We left windows open in winter. With the way our building was split, some rooms had too much heat. Because there was only 1 thermostat, the only way to cool these rooms was to leave the windows open.
I imagine I am not alone with this way of thinking. The problem is that without having the responsibility of paying for a utility, the tenants will not be mindful of how much they are using. What this means for every investor is the more of a utility used, the less cashflow that unit will bring in.
There had to be a better way. In episode 60 of the BiggerPockets Podcast Serge Shukhat explain how he hired a company to sub-meter his multi-family properties. After the main water meter (which Serge gets billed for), this company installed a water sub-meter for each unit. The main water bill goes to Serge, but then he collects payment from the sub-metering company that bills each tenant for their usage. Genius!
So I began looking around my area, and an unfortunate side effect of investing in rural area is that a company to sub-meter the property did not exist. So I have decided to create one. Here is my proposed plan.
- Establish a new company using a DBA (Doing Business As)
- Install 2 sub-meters on one of my multi-family properties. This will be our latest rehab so we already have all the water lines split with this idea in mind.
- Our real estate business will continue to pay the water bill. Our new DBA will send the tenants a monthly bill for their water use.
- Our DBA will pay our real estate business for the water used.
Any time I have a new idea, I love to run it by others to hear the pros and cons. Have you use sub-meters on your property? Are there any major holes that my new strategy is missing?
I’d love to hear your thoughts below.