Multi-family running numbers

[Freddy Hernandez]

Hello, I am trying to move into multi-family investing and currently practicing running the numbers. One part I am struggling with it to figure out how much I would be paying for utilities. I dont see any mention on listings how much on average utilities are for the landlord.  Is there a recommendation on how to estimate these numbers?

[Kevin Sobilo]

@Freddy Hernandez, landlords prefer for tenants to pay their own utilities especially those based on usage.

However, where utilities are combined there is no easy way to estimate the cost because there are too many factors at play. For example with heat, the fuel (electric, oil, natural gas, etc) all cost differently. Then you have the efficiency of the heat source an 82% efficient steam boiler versus a 95% hydronic boiler. Then you have the energy efficiency of the home, its size etc.

So, for utilities like heat you want numbers from the seller, but also in some places you can call the utility company and they may give you the average monthly bill over the previous 12 months for that property. 

[Gino Barbaro]

@Freddy Hernandez

Utilities are based on whatever market you are in. Look at some comps in the area, and you will get a good understanding of utility costs.

In some markets, landlords bill back utilities to the resident. And some properties have separately metered utilities. 

You can always ask for guidance from a broker. When you underwrite a deal, on the T12, it will show utilities

Gino

[Sam Applegate]

Whether utilities are individually metered or master-metered makes a big difference. If each unit has its own utility meters, tenants can handle their own utility bills, so the landlord doesn't have to worry about paying them. But if the utilities are on a master meter, the landlord has to cover those costs. In that case, it's important to check out the T-12 (trailing 12 months) financial statements.

Looking at the T-12 is key because utility costs can vary a lot from one property to another. For example, single-pane windows can make heating and cooling more expensive compared to double-pane windows. So, it's a good idea to really dig into the T-12. If the property is master-metered, consider setting up a RUBS (Ratio Utility Billing System) program to bill back some of the costs. Just be aware of your state's laws, as they can differ on how much you can bill back to tenants. If the property is mastered metered, I use the total utility bill from the T-12 as the estimate in my pro forma.

[Joshua Christensen]

@Freddy Hernandez you've gotten some great advice in this post, so I won't rehash all that.

When we're evaluating a new property, we consider a couple of things.

HISTORY If you're dealing with a seller directly, ask them for the most recent 12 months of bills.  If you're dealing with a broker, ask him to request that information as part of your due diligence from the seller.

RUBS/BILL BACK When there are single meters on a building, you can bill back a percentage (based on location) to the tenant. You'll receive the bill.  Example.  You may have a flat $xx dollar amount added to the rent monthly (specified in your lease) for utility bill back.  You receive the utility bill and pay it, while collecting from the tenants.

TENANT PAYS When the meters are separated per unit, make it a requirement of move in to have the tenant provide their utility account numbers to you so you know they are set up and not being billed to you.  Verify of course with the utility companies to make sure they aren't giving you bogus numbers.

EFFICIENCY look for ways to "value add" through energy efficiency.  Update all lighting to LED.  Ask the power company to evaluate for any electrical leakage that you can repair.  Ask a plumber to detect for leaks you can't see.  Add water meters to separate the exterior usage to the building usage (sometimes the water companies will provide a break for that portion).

There are a lot of things to consider and utilities are a big part of operational costs associated with apartment ownership and management.

Best wishes to you.