Landlord pays heat - lock the thermostat?

Question

I looked at a sixteen unit multi family today. It consists of two buildings. There are a total of three gas boilers for heat. The landlord pays heat and water, but each apartment has it's own electric meter and then there is another meter for common areas.

When I went into one of the apartments, it was super hot in there. (Why not? Someone else is paying th bill.) I looked at the thermostat and it was set at 78. I saw that another unit had the windows open a little bit and it was 20 degrees out!

There would be no easy way to seperate the heat and the boilers are all less than two years old.

I've seen those covers that go over the thermostat and lock. Do any of you multi family owners use these? If so, what do you set the heat at? Is it legal to do so?

I like not paying utilities on my single families, but I'm looking to expand. I just hate the thought of having massive gas bills.

Any advice would be appreciated.

Rob K. · Answer

Dawn Anastasi Thanks! That's perfect.

Here's the link:

http://www.landlordstat.com/hc71SB.html

I like how under Model HC7176, it says, "No more getting raped by abusive tenants". That made me lol - literally! I can't believe a company would put that on their website. Very unprofessional, but still funny!

Dawn Anastasi · Answer

If the tenant has the heat up to 78 and has a window open they are literally throwing your money out the window.

This link has a thermostat that limits the heat to 71 tops and turns it down to 68 every three hours. The tenant can increase it if they wish for a little bit, but it never goes too high.  You can put a lockable box around the common area ones.

http://www.landlordstat.com/hc71SB.html

John Chapman · Answer

Is that pretty common in your area, Rob K for the owner to pay heat and water?  I've looked at a ton of multifamilies in my area where owner pays utilities (you can get properties here where that's not the case) and have never been able to get comfortable with them.  I've seen properties where literally expenses exceeded income under any scenario.  That is, I wouldn't even pay $1 for the property.   It's such a massive expense over which you have no control that I've pretty much ruled out ever owning a building where I'm responsible for utilities.  I've never actually owned a building like that so I'd be curious to see how others have fared.

Amy A. · Answer

I pay for heat in my buildings.  I converted to natural gas a few years ago and pay about $2400 for 5 units heat and hot water.  I have an outside sensor that I set at 68 degrees, so if it's warm outside the boiler runs less, no matter what the thermostat says.  Most of my thermostats only go to 72, which is well above the legal minimum.  I ran the numbers and the increased rent I get for providing heat covers the bill.  Many in my area use oil heat.  I would be paying over $6000 per year if I were still on oil.
I have a penalty of $15 per incident for tenants leaving the window open during the heating season.  I don't let it go when I see a window open, I become the crazy landlady and call immediately.  The only tenants who I've had a problem with were also bad tenants in other ways, so finding good tenants will help.

Chris Masons · Answer

Without being able to seperate the gas utilities this sounds like a tough property to manage for the utilities alone...

"Had it up to 90" I almost just threw up in my mouth!!  LOL

Don't have an answer for ya Rob but what people are saying about the locking stat cover is true - they are very easily manipulated. Unless you bought stats that won't go past 70 maybe theen you have a shot. Here in NJ where landlord pays heat during the day it is required to be min. 68 degrees and from 10 pm to 6 AM it can drop down to 60 or somewhere around there. My 4 family use to have an old steam boiler for the whole building and man that was tough to balance out with the two floors.

anyway good luck!

Chris

Steve Babiak · Answer

Before going that route, read these other BP threads:

http://www.biggerpockets.com/forums/52/topics/39794-heating-season

http://www.biggerpockets.com/forums/12/topics/34037-heat-included-in-rent-new-york-state

http://www.biggerpockets.com/forums/48/topics/27137-is-this-legal-

http://www.biggerpockets.com/forums/52/topics/23979-cap-heat-in-mn-or-other-cold-winter-states-

In other words, don't do it ...

EDIT: left out one link:

http://www.biggerpockets.com/forums/52/topics/39174-landlord-controlled-thermostats

Steve Babiak · Answer

Sounds like he thought it was a fast car :)

James H. · Answer

A lot of apartment complexes in my area divide the water bill by the number of units and bill the tenants for it. I don;t know if this is a legal practice in all states or with all utilities. I really like Amy's techniques. I would combine that with the utility averaging and billing back if possible.

William Bannister · Answer

Get em Amy I love that:) keep expenses down!  Between money out the window and down the drain if you dont plan to bifurcate the utilities on old buildings like Joel says dont even buy em if your profits are eaten up by the utility companies. Going green if your good at it can be some good money when you look at old apt buildings to convert. Insulate, new heating and separate water meters. 
   This is why in larger cities in war zones its not just the crime that empties out these larger 2000+ sqft homes duplexes and smaller apt buildings its the outrageous utility costs.Its too bad too because I have watched some beautiful homes empty and will eventually be torn down. The location just doesnt work for me though.
   I watched a guy convert a 12 unit to a pellet boiler unit he installed and his heat bill dropped 80%. saved him 1000 per month cash flow. The question is who are you going to pay to load it once a day? This building was a self managed operation the owner lived across the street. 
   If I could just get the pellet boiler to self load on a conveyor then maybe I could show up once a week if i did this to some older 4 unit buildings to cut heat down.
   Im also looking at the outdoor units geothermal types.

Joel Owens · Answer

I evaluate multifamily deals daily.

Utilities is the absolute "cash flow killer" to end them all. When many of these older buildings were built water was not expensive so they did not sub-meter. Fast forward to today where water in many parts is like "liquid gold".

My clients wanting to buy larger buildings look at utilities like a hawk. The key with water if the landlord pays is what is the going water and sewer rate usage the county or city is charging??

Are they fixing to go way up on their usage rates in what they charge or have they been going up each and every year?? Even if water usage is slightly higher by tenants by the charge by the city or county is low then the bills do not get that high.

In places like Fulton county in Atlanta water rates have risen about 40% in the last 5 years. This is in Fulton county in the city of Atlanta and not the external counties in the MSA area.

If you can get the cap high enough on the purchase with paying water and the area is good you can factor in higher annual total costs at 60% of Total Gross Expected Income before debt service.

Gas and water paid by the landlord there is NO WAY I would touch such a property like that. Cheap does not equal a deal and often times equals a headache and a cash flow loser no matter what you do.

Landlord pays heat - lock the thermostat?

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