I know what most of the advice will be but I am just curious. I am currently looking at two small apartment buildings, 6 units each, both include all utilities. The concept of including all utilities scares me because it is a revenue killer. One of the buildings has only one meter for electric and the other has two meters. Also both include hot water in the rent.
Thanks in advance.
Is utility included common for the area?? If it's not then changing to offload on tenant they will go elsewhere. If it's an old building that hasn't been converted then you need to figure out that costs and reflect it in your offer price. Also figure vacancy and lost rents with repairs if the tenants balk and want to move out.
I can speak from experience. Landlord paid utility is horrible. Tenants do not report leaks etc. and consume about 30% more than average when they do not pay the bill or it is rolled into their rent total for the month.
I would have to get the property for almost nothing to be worth my time. 6 units is also a scaling issue for managing. At 6 units it is small so you do not get commercial financing benefits of larger loans. Ay 6 units you can't get the residential long term loan like a quad.
So it's the no man's land grey area of not small enough and not big enough so unless you want to build up a 6,8,10 etc. and have 50 units all over town as your investment strategy then I don't like it.
I agree that is a revenue killer. I think electric is something you should always have paid by the tenant since it can be extremely high, especially if air conditioners are used. We would be destroyed financially if we had to pay our portfolios electric bill and luckily our buildings are already sub metered. I have added meters to smaller properties and think it has a reasonable payback period, plus will make selling the property that much easier.
Water and heat are difficult to sub meter. With water you can do a RUBS program and charge the residents a percentage of the water bill. If you competition is doing this, I would highly recommend doing so. If they are not, you might want to test or have the percentage at a lower rate to test it out.
Utilities can be a killer. Get actual costs for each utility from the utility company or actual bills. Compare your utilities included rent to other rent in the area where utilities are not included. Does it compare? Are you compensated for the cost? If your heat is oil, also figure what it costs when the oil is cheap and expensive. (and make sure you have all the cost for any delivered fuel).
For electric you need to calculate out the cost of changing over to separate meters. If you are re-wiring anyway due to dated wiring that is one thing and it may be worth it to separately meter. We have a 5 unit building with heat included but not electric. Air conditioners doubled the electric bill when we were working on one of the apartments and we weren't living there so I would never include electric. Heat it is too expensive to separate so we include it and work on ways to decrease cost like insulation windows, and landlord thermostats. We emphasize in advertising that heat is included to justify our rent and we have a market for that.
For hot water if you separate electric you can go to on demand or in unit systems but there is a cost to that and the on demand units are pricey. Carefully consider the washer dryer aspect here too. We don't have washer dryer units on site but when we add them they will be tenant paid. Are you also paying for water and electric for washer dryers? A lot to consider and it really is all about the numbers. What does it cost to run? what does it cost to convert?
We did get a nice commercial rate from a local bank for our purchase so don't let the financing comments get to you. It was different then single family process but not by a lot.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing