Mult-family with Single furnace and water heater
Member since 2023 · 11 posts · 16 votes
Mult-family with Single furnace and water heater
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Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
3yQuote from @Stephan Guna:
I recently visited a house marketed as a multi-family house going for a pretty good, price. I overall love the quality and everything with the house, it needs a bit of work, but nothing out of my range. All the houses I have visited so far all have 2 water heaters and 2 furnaces for each unit. However, this one only had 1 water heater and 1 furnace with the house. How would this work out? If I wanted to still rent out to both units, one unit is already occupied, but would that not lead to concerns of one person controlling the heat etc. I would prefer the tenets take care of heat/water, but I don't know even how this would be possible.
This is a conversion. There are a decent amount of single family houses in Cleveland that were spit up into two family houses years ago.
What you'll do is pay the gas and electric yourself. Note these conversions never perform as well as true duplexes do. They always attract a lower quality tenant who pays a lower rental amount and is less stable so you'll need to make your offers on these kinds of properties lower than true duplexes to reflect all of that.
5 Replies
- Member since 2022 · 1 post · 1 vote3y
You will likely be on the hook for covering hot water and heating for both units as there is no way to accurately separate usage costs- factor that into your calculations and ask the seller for last 12 month’s running expenses to get an idea of what that would cost.
If the property has 2 gas meters in place for cooking gas you do have the option of installing a second boiler and hot water heater - if not your first step would be requesting an additional gas meter(assuming your heater and boiler are gas run).
- 3yAlecia LovelessPro MemberMember since 2019 · 3k+ posts · 2k+ votes
@Stephan Guna I have many properties where there is one furnace and one hot water heater for 3-4 units and every unit has its own heat control. In those properties I pay for the heat and hot water. In my market it is usually oil which has increased tremendously over the past several years and can fluctuate significantly over one winter.
I am now in the process of converting almost all of my buildings to propane heat with Ranai heaters. You usually need one heater for every large room but they may vary in size based on the room. It is an expensive option but it is a write off and after two winters will pay for itself and after that will just make my NOI that much stronger. I am lowering my rents a little, if you're currently not at market rent this might be a good trade off, to provide a little relief for the new added cost of the heating. In the long run I will come out $1000s ahead each year in heating costs.
For instance it’s costing $22,000 in one building and I pay annually about $9800 for heating. Which once tenants pay their own they’ll pay even less because they’ll stop opening windows all winter and conserve heat and with multiple properties I am getting a commercial fuel rate now that I pass to the tenants that’s much less than they could get on their own.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Stephan Guna:
It depends on the type of heat. If this is a boiler system, you can install control valves and thermostats for each unit so they control their own heat. If it's a forced-air system, giving each unit their own thermostat and control is more difficult/expensive.
HOW TO SHARE UTILITIES 101
You have a property with two or more units and the utility meters are shared. There are a few options.
1. Pay to separately meter the utility. This can be very expensive and is usually the worst choice to make because you can't justify the cost.
2. Charge the tenants a higher rent rate and include utilities with their rent. This is the simplest method, but it also means your tenants are more likely to abuse the utilities by leaving windows open with the heat or A/C running, leaving lights on, ignoring the toilet that constantly flushes on its own, etc.
3. Pay the bill yourself, then reimburse yourself by charging the tenants based on a formula. This takes a little more work, but it's the most fair and reduces the likelihood of tenants that squander utilities.
If you choose #2 or #3, there are considerations:
Start with an average. Use varies throughout the year. Heating costs go up in winter, as does electric due to the reduced natural light and people being indoors more. Electric can also spike in the summer with A/C. Contact the utility provider and get an historical average based on the last year of use. It won't be 100% accurate, but it will be close enough. I recommend you do this each year to adjust for utility increases and other variables. If your average heating bill is $150, you may not collect enough in the winter months when the bill reaches $225 but you'll collect extra in the summer when it drops to $65. If you base your tenant charges on the historical average, you should come very close to collecting the entire amount over a one-year period.
Charge a higher rate. If the water bill is $100 a month, increase the price by 20% (or whatever you decide is fair) to compensate you for the time required to split and bill and to cover additional use when tenants squander the utility. If the bill is $100 a month split between four units, increase it to $120 and charge each tenant $30.
How to calculate charges. Don't make it harder than it has to be. If you have four 2bed/1bath units with the same appliances, split it four ways and call it a day. You can make minor adjustments based on the type of appliances (dishwasher, clothes washer and dryer, air conditioning, etc.) and the size of the rental. If Apartment A is a 2bed/1bath with washer/dryer and Apartment B is a 1bed/1bath with no washer/dryer, Apartment A should pay a higher rate. Another option is to split the cost based on the number of occupants in each unit but this also means you'll need to adjust the charges as tenants move in/out, so it requires more work and I wouldn't recommend it. I recommend a simple spreadsheet to check your math and it will make it simple to adjust each year.
End the complaints. Tenants may complain about your method of calculating how much each unit pays. They think it's unfair because they only shower once a week but they can hear the upstairs neighbor showering twice a day. You can put an end to this by showing them an actual utility bill. Why? Because a large percentage of the charges are base fees that do not change based on use!
I just looked at a utility bill and it has a total charge of $184.12 but $116.50 is from base fees! If I divide this bill by four units, each tenant would pay $46.03. If they were separately metered, each tenant would pay the $116.50 base fees and their individual use, which would be 3x higher than what they pay when sharing a meter.
There are a lot of options out there, but don't make it more complicated than it needs to be. Tenants actually save money when using a shared meter, so there's plenty of room for error when calculating how to distribute the charges.
The DIY Landlord Book4.7243 Reviews - Real Estate Agent · Cleveland, OH · Member since 2021 · 383 posts · 361 votes3y
This house was likely an old single family converted to a duplex a very long time ago. You will see these in Cleveland from time to time. They're a little annoying from an investment perspective just because you having to pay for electric and gas for both units eats into your margins, but you just have to factor these into your numbers and offer accordingly. Unless you want to fork up the money to get it converted to 2 separate hot water tanks and furnaces, which will likely cost much more than it's worth.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes3y
Quote from @Stephan Guna:
I recently visited a house marketed as a multi-family house going for a pretty good, price. I overall love the quality and everything with the house, it needs a bit of work, but nothing out of my range. All the houses I have visited so far all have 2 water heaters and 2 furnaces for each unit. However, this one only had 1 water heater and 1 furnace with the house. How would this work out? If I wanted to still rent out to both units, one unit is already occupied, but would that not lead to concerns of one person controlling the heat etc. I would prefer the tenets take care of heat/water, but I don't know even how this would be possible.
This is a conversion. There are a decent amount of single family houses in Cleveland that were spit up into two family houses years ago.
What you'll do is pay the gas and electric yourself. Note these conversions never perform as well as true duplexes do. They always attract a lower quality tenant who pays a lower rental amount and is less stable so you'll need to make your offers on these kinds of properties lower than true duplexes to reflect all of that.
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