As I do research on owning rental properties, I'm trying to figure out how so many of the rental property owners in my area are managing to make a profit while offering free heat and water to their tenants. After doing the math, unless you own the building outright with zero debt, I just don't see how you could be making very much. On a 2 bedroom apartment, heat and water could easily be $100/month per unit, especially if the windows are old and the furnace is not newer.
How are these guys making money? Or is that the reason so many apartment buildings end up for sale; the owners went broke giving everything away for free?
I will not buy another apartment building where I pay utilities unless I get the property for next to nothing.
Landlord paid utility is the worst cash flow killer out there period. Tenants use about 30 to 35% more on average when they do not pay. They also tend to not report leaks as they do not care about the bill to you the landlord.
If the area has it customary that the landlord pays utility then spending tons of money to separate it out will do nothing for you and tenants will move down the street. If you just have an older building that hasn't been converted yet but other buildings in the area the tenants pay utilities then it can make sense to convert over. Anything unpredictable in costs for the future you want to unload onto the tenants if possible so your cash flow is protected.
What makes you think that they make a profit?!
@Joel Owens Joel, are there any 20 or 30+ MF with separate water meters/bill? I've seen a lot of separate electric meters but not quite sure about water meters.
It's tougher to find separated water. 20 to 30 years ago water was cheap so many developers just thought to include it in the rent. Fast forward to today and water is called " liquid gold ".
Free utilities to me means no cash flow.
So what would you do if you found a good property in a good area, but it still had the water and gas going through a single meter? How would you determine whether it would be worth the expense and hassle to split those up into individual units?
Based on experience. If you can get rid of the expenses it make the property worth a hell of a lot more.
I pay utilities on most of my properties and I hate it. But I own lose end properties where I can absorb the cost. I also self manage and I'm very hands on. I wouldn't recommend this unless u fit that criteria
I was looking to buy a apartmrnt complex 100+ units and most of them had 100k+ a year in utilities(Water and trash) Utilities just kill the profit. So i did some research and i found out about sub meters. Which would basically separate the water to each unit and then each tenant would be charged each month for water.
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