Multi-Family- 4-plex Utilities?

Question

Looking at my first multi-family today (4 plex). Got a copy of the rent roll and it appears that the current owner is paying all utilities (water, electric, garbage etc)....cutting into a major chunk of the monthly cash flow.

Is this standard practice?

Charles Soper · Answer

Congrats on the 4-plex, or atleast branching into multi-family!

The answer as usual is "it depends".

What class is the property?  If it's C- minus or worse then it wouldn't surprise me if the current owner is paying all utilities just to keep it occupied.  Higher class C and above then it's more dependent on the comps in the neighborhood, what are other small multi-family properties doing?  If they're all doing it as well then yeah, it's standard practice for the area.

If not then you have an opportunity to reduce expenses and increase your net income, yeah!

Something else to consider is if the utilities are separately metered, if they aren't that could be the reason the owner is paying it all, it can be a hassle.  So work that into your numbers, if you're doing a rehab it might be worth your time to get a plumber/electrician out to get a quote on breaking out the utilities.

Thomas S. · Answer

There are quite a few multi units out there that do not have separate utilities for each unit. They are purchased usually buy novice investors that have no idea what they are doing. I would strongly advise passing on any multi that does not have utilities in the tenants name unless your offer accounts for the cost to install all separate utilities when you take ownership.

Leave those properties for novice landlords to pay for their tenants utilities.

Leave those properties for novice landlords to pay for their tenants utilities.

Tyler Blackwell · Answer

Hey @Chris Dickey, I can echo what others have mentioned...it depends! Where I'm at it's pretty standard for the landlord to cover water/sewer/garbage, while the tenants are responsible for energy (electricity/gas/fuel) and other discretionary utilities like cable/internet. Hope this helps.

Charles Soper · Answer

To @Thomas S.'s point, I just finished a rehab on a 1955 built duplex in a gentrifying neighborhood.  When I bought it it was separate electric (tenant pay) and owner pay single water meter.  I did an EXTENSIVE rehab and ended up replacing all the plumbing and sewer lines, I knew going in I was going to hold it and it would be worth the cost to replace so I knew what was in the ground/walls and didn't have the water/sewer/garbage bill but it wasn't cheap, to the tune of $17,000 between the plumber and the city.

ROI wise, doing that saved me about $3500 a year in water bills, so my ROI is roughly 20% and it will pay for itself in about 5 years.  Oh, and it doesn't hurt that it helps the property stand out if/when I decide to sell.

Chris Dickey · Answer

Appreciate your response and advice, Thomas.  I found it it very interesting/peculiar that the current owner had it structured that way.

Chris Dickey · Answer

Charles, this is fantastic information, just what I was looking for!  Appreciate the response!!

Multi-Family- 4-plex Utilities?

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