Looking to buy first multi-unit building. Existing tenants in place. Currently seller is paying majority of utilities (including cable). Based on my analysis this is killing cash flow and ROI. What options do I have if I move forward with the deal to move utility costs to the tenants? Can I make these changes once I close or is this based on existing lease agreement? Obviously, if they are good renters I don’t want to chase them away but I don’t want to pay for their utility usage either. Thank you for your time and knowledge! Rick

First see what the area standard is at other units. Do the tenants normally pay or do the owners (call rentals)? If the tenants pay then that should be a plus for you! Offer based on actual NOI and cap rates, not the seller's price. Then you can add value by sub metering the utilities back out etc.

let me say this... in Oregon, you are purchasing a property, any lease agreement is binding to you, the new owner. Also, I tend to follow the norm for who pays what. Another factor, if there is a common meter, you cant make a single unit pay for it. Example, my 4 plex has a single water meter, and individual power meters. So I pay water and tenants pay there own power. hope this helps

Thank you

Originally posted by @Walter Roby jr :

First see what the area standard is at other units. Do the tenants normally pay or do the owners (call rentals)? If the tenants pay then that should be a plus for you! Offer based on actual NOI and cap rates, not the seller's price. Then you can add value by sub metering the utilities back out etc.

So in a way, it doesn't matter if you even know the seller's asking price if you correctly analyze a property because you come in with what you can offer, regardless, based on NOI, Cap rates... I mean we will know the seller's asking price, of course... but just asking if that is kind of what you mean. Seller's price be damned, this is what I can offer based on the analysis. Take it or leave it.

@Rick Thompson I feel like you should do what is being said above. Find out what the norm is. If tenants having utilities rolled into their rent is the norm, then see if the current rent being charged for those units is even high enough? Maybe that would help with the ROI and Cash Flow? If not, time to look for another one!

Good luck!!  I am on the hunt for my first multi-family as well here in NC. Hopefully Triplex or Quadplex.

I would think if you analysis is saying the deal is bad if you have to pay for utilities going forward. then it would also be bad if you have to pay the cost of splitting the utilities. Install multiple meters and hook ups is very expensive upfront, and if the deal is that tight now that isnt going to help

@Rick Thompson I agree with what @Walter Roby jr said above. Analyze the property based on the actual rent roll.  See if there're ways to add value to the property through either rent increase or other streams of income (aka utilities bill back through RUBS or directly) or ways to lower the expenses in other ways. If a property has a potential then negotiate the price with a seller based on the actuals. 

Best!

@Rick Thompson To start: The lease is the lease. During escrow you’ll get copies of the leases to review so you’ll know how long you’re obligated to the current arrangement, what the terms *exactly* are, etc. Then you can look at what happens with bringing rents up, obligating tenants to pay utilities, individual metering costs, etc.

If you’re “in it for the long haul” a few months of remaining leases that aren’t what you want. So some of this depends on the timeframe you want to hold. 5 more months of a “bad” lease matters far more of you want to own for 4 years compared to 40.

Thanks everyone. I walked away from this one.