Single Meter Duplex-- Utility costs getting out of hand??
Hi all. Last year I purchased my first rental (BRRRR) for $115,000, and put around $30,000 into repairs. It appraised for last month at $220,000 in which I was able to do a cash-out refi and pull almost $30k back out.
With all of this said, I was a complete amatuer at the time in which it is now costing me a large sum of money monthly. I include all utilities in the rent in which I gross $2,440 a month. I cash flow anywhere between $600-$800 between both doors.
As time goes on, I feel as if I am going to undergo an ample amount of stress and headache dealing with paying for the utilities as tenant remorse for heavy usage is slim to none.
I have contemplated on selling the property to an investor who is apt to dealing with single metered MFH, but that's still in speculation, given that rates are much higher than months ago.
What would you do in this situation?
Copy the last 6 statements. take an average of the costs per month. tell the tenants rent is increasing by that amount. If it goes past XX.00 it will be adjusted further. thank you.
I would notify the tenant of increased utility costs and use, which is requiring you to increase rent to cover the expenses. Many tenants will accept the change. If they refuse, then you'll have to ride out the current lease. Let tenants know that you can't afford covering the cost of utilities and will not renew their lease upon expiration. That may be enough to motivate them to start paying more, maybe they'll choose to leave early, or maybe they won't change a thing. It's worth a shot.
#3 Managing Your Property Contributor
When it comes to renewing the lease or turnover (which ever happens first), change it so that the utilities are paid by the tenant. You still get the bill, but then you bill the tenants direct each time you get the bill and they have X days to pay you. for heat, charge based on space, for water based on occupancy and number of bedrooms. So if both units are equal square footage (or close to it), split the heating bill 50:50. If one unit has a family of 4 and the other side a couple with no kids, I'd split it 2/3 to the family and 1/3 to the couple.
Other option is what Henry suggested, tell them costs have gone up and you are increasing rent to cover those costs based on the average for the last year (and keep calculating the average for the past year at lease renewal) and any amount over $X will be split between the two.
Quote from @Henry T.:
Copy the last 6 statements. take an average of the costs per month. tell the tenants rent is increasing by that amount. If it goes past XX.00 it will be adjusted further. thank you.
Great response. As simple as this is, I hadn't thought about this.
Thanks.
Quote from @Nathan Gesner:
I would notify the tenant of increased utility costs and use, which is requiring you to increase rent to cover the expenses. Many tenants will accept the change. If they refuse, then you'll have to ride out the current lease. Let tenants know that you can't afford covering the cost of utilities and will not renew their lease upon expiration. That may be enough to motivate them to start paying more, maybe they'll choose to leave early, or maybe they won't change a thing. It's worth a shot.
Thanks for this, Nathan. They're good tenants with little to no complaints. Recently, I have covered A/C usage during this great heat wave in the southeast, of which they said they would watch usage... Not sure what to expect as we will see when I get the bill.
This is a great take.
Quote from @Theresa Harris:
When it comes to renewing the lease or turnover (which ever happens first), change it so that the utilities are paid by the tenant. You still get the bill, but then you bill the tenants direct each time you get the bill and they have X days to pay you. for heat, charge based on space, for water based on occupancy and number of bedrooms. So if both units are equal square footage (or close to it), split the heating bill 50:50. If one unit has a family of 4 and the other side a couple with no kids, I'd split it 2/3 to the family and 1/3 to the couple.
Other option is what Henry suggested, tell them costs have gone up and you are increasing rent to cover those costs based on the average for the last year (and keep calculating the average for the past year at lease renewal) and any amount over $X will be split between the two.
Thanks, Theresa. This sounds extremely similar to RUBS, in which I have contemplated, though it's hard to gauge usage between upper and lower, as even if the occupancy and square footage are equal or not, one family could use an increased amount of utilities depending on how conservative they are...
However, I wholeheartedly see what you're saying, though I tried to steer away from RUBS for the simple fact of truly not knowing how much is, in fact, being used-- too much calculation when I don't believe it would matter either way.
Quote from @Kiefer Caughron:
Hi all. Last year I purchased my first rental (BRRRR) for $115,000, and put around $30,000 into repairs. It appraised for last month at $220,000 in which I was able to do a cash-out refi and pull almost $30k back out.
With all of this said, I was a complete amatuer at the time in which it is now costing me a large sum of money monthly. I include all utilities in the rent in which I gross $2,440 a month. I cash flow anywhere between $600-$800 between both doors.
As time goes on, I feel as if I am going to undergo an ample amount of stress and headache dealing with paying for the utilities as tenant remorse for heavy usage is slim to none.
I have contemplated on selling the property to an investor who is apt to dealing with single metered MFH, but that's still in speculation, given that rates are much higher than months ago.
What would you do in this situation?
Have you researched the cost to have the units individually metered?
Is solar a viable option?
Are they actually and currently being wasteful eating away at your bottom line or are you just concerned?
How about billing tenants for power by average considering the number of occupants?
@Kiefer Caughron If possible within the laws of your state can you pass the additional costs to them via rent increase? Your statements from the utility should show an unusual increase in usage beyond the norm and raise the rent accordingly? If the bills continue to escalate be prepared to modify your lease on renewal accordingly.
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all good suggestions above, but what are you complaining about exactly?
You said you cash flow 600-800 a month as is. You got all your improvement money back. If you put down 20% I have you at a minimum of 600/mo on about 25K of cash invested, including transaction costs. That is a 29% return cash alone and $7200/yr. Not sure why you say you are losing money?
How's the insulation in this house? How do the utilities usage for this house compare to other houses in the neighborhood?
(our utility company has that info openly searchable). An energy audit is money well spent.
You need to figure out if the high bills are due to tenant waste or an inefficient house. The latter is your problem.
How much are we talking monthly? (XX in the above suggested calculation)
Where is your current rent compared to market rent for the area?
Sounds like your cash flow is fine to ride out this lease and adjust for the next lease. It's probably a very minor cost of learning for one year. Be transparent with the tenants. Many tenants are interested in energy conservation. Don't assume they aren't. Talk to them. They might be able to control their usage to avoid a rent increase next year.
Possibly think about: increasing attic insulation, putting utilities in tenants' name, requiring that all light bulbs are LED, and getting energy efficient mechanicals/appliances if they're not Energy Star already.