Converting to tenant paid utilities

4 Replies

In the milwaukee area, a lot of properties advertise heat included. If I were to find a deal with existing tenants in this condition the rent would have to be lowered if I made them responsible for their utilities. Right? Sorry if this is a thread hijack?

Split off to a separate thread, since its a good question and deserves some thoughts.

I've considered how to handle this, since there are lots of small "heat included" buildings here in the Denver area. I think I'd try a combination of lowering rents in exchange for them paying the utilities when existing tenants come up for renewal, and trying for slightly higher rents for new tenants.

Trouble is if all the other units in the area are heat included, I think prospective tenants will pass up your units.

I own some stick built stuff but mainly mobile home parks where sub metering utilities from a master meter is now a pretty common thing. A couple of catches... be very careful because doing so in some states makes you a public utility... and that is not much fun. Some states, like Texas, allow for you to overcharge by up to 9% to cover your billing costs...
If you have one entry point, sub metering is pretty simple. You might put in the utility meter instead of a rent raise. I have found, that in every case the 'master' utility bill has gone WAY down after meters were installed... like 50%. If I were going to let rent slip to justify the new meters, I would take into account a sub metered average and not just divide out my current bill, as consumption will go down on water, electric and gas.
I am also in the Denver market, and I have the tenants pay everything except water, as I want my lawns watered. Though I have thought about metering my own water usage through the sprinkler, and still passing on the charges except the outside watering...

I think Emilio might be referring to situations where a duplex is served by one boiler (radiant heat) in a Victorian era duplex. I owned several in Kenosha, WI. In my situation, while gas for cooking was already separately metered, the pipes use for the radiant heat were shared, and you couldn't separate them with a second boiler.
I put a locked cover over the thermostat that was set for 71 degrees. With only one thermostat (in the upper unit), controlling the heat between the untis becomes an excercise in adjusting the valves on each of the radiators.
The tenants in these older duplexes tend to be low income, and in reality, are not financially able to handle the WI winter heating bills on their own. So, a heat included rent does command a premium on the rent. The trick is then to charge enough throughout the year to cover the winter bills. Achieve a high summertime cashflow, and expect a wintertime cashloss, especially since the WI property tax bill is due in January.
Make sure you explain to the tenants that heat included is not heat unlimited and they have no control over the temp. WI law requires that "heat included" requires (if memory serves) a 67 degree minimum. Even so, making sure to control the temp is vitally important with the combination of a victorian era (poorly insulated) building in a Wisconsin winter.
WI also offers landlords of low income rentals a weatherization program for older buildings that will replace appliances, windows, boilers/furnaces, and improve insulation in attics and walls. I forget the name of the agency, and there was about a 9 month waiting list when I left there. I did it with mine. The owner pays about a dime on the dollar. The boiler and other appliances (fridge and electric stoves) are all high effic/energy star. The catch is a one year agreement that the units served will be rented only to low income (duh). They do everything (they decide what work is to be done after their inspection, they use their contractors, their schedule, etc.) and bill the owner afterwards.

Thanks for all your input. Ralph is spot on. I was actually looking at a 10 unit multifamily, but own one of the duplexes he describes with a thermostat that has the plastic box over it. The 10 family has a central boiler and radiators in each of the units. I was pricing switching the central radiant heat for heat pumps in each unit that would provide heating and cooling. That way I would be able to have each unit separately billed by the utility and add A/C as an amenity. Are there any other techniques for making the tenants responsible for the heating/cooling with a centralized system instead of individual units? It seems to be that the older properties that haven't been through a recent remodel or upgrade need to include heat and sometimes cable and internet to be competitive. The newer properties get away with making the tenants pay for everything because of the newness factor. In Milwaukee anyways.

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