As we've been analyzing deals in Spokane, we're routinely coming up with low and negative cash-flow analysis. A big part of it seems to be the UBER high utility costs in Spokane: water, sewer, garbage (and sometimes gas), which we've learned that most landlord bear as a cost of doing business. This is unique relative to other places I've personally rented (Denver, Orlando, LA and Boston).
Is anybody out there seeing similar variables affecting your deal analysis? How are you bridging the gap?
We've been talking about "Billing Back" utilities like water, sewer, garbage to the tenants, but we're concerned there will be lots of resistance since rents are already so low in Spokane.
Investor · Spokane, WA · Member since 2015 · 86 posts · 68 votes
8y
I'll chime in with what we do, but I admit this would be difficult at scale.
And as Spokane's current vacancy is at 1% or less, I'd say just implement the billbacks if you can. I think you'll be fine. People realize Spokane's market is changing. And, try it at one property to A/B test the rents you can get and time to fill those units between lease-ups.
I'm mainly in the 2-4 unit space, and Spokane has lots of 100-yr old houses that were split into apartments during the two world wars. As such, many have separated the electrical, but kept the original water and gas service.
We've overcome this in several ways to end up with strong numbers, but they've all involved charging above-market rents.
By the room leases—A 2b/1b apartment that could get $900 to a family is rented at $600/rm to students.
Furnished apartments—People understand they're paying above market rent for an all-in place to stay. These are typically more like corporate housing or traveling medical professionals.
Short term rentals—We've used Airbnb selectively as a way to turbo-charge properties that maybe have a small funky unit that can't command strong rents but still is a bear to heat in the winter.
Since electrical is what I see being most commonly separately metered, I see a disproportionate amount of these smaller properties still relying on baseboard heat so that tenants can foot the bill. We actually have one house where we've sort of done this. We cover the central heat, but will only heat the house to about 65. Then, tenants use a mix of baseboards and space heaters to cover the rest on their own dime.
On my last two rehabs, we've separated plumbing to the units so that we can pay a single city base charge, but then submeter the units down the road to do RUBS.
We also tried, at one property, simply sending a group email each month sharing what our heat bill was and how that compared to the previous year. This was actually fairly effective, as tenants could connect the dots between high utilities and an inevitable rent hike.
In conclusion, I'm re-reading all the ways we've side-stepped doing RUBS. You should just do it. =)