Investor · Trenton, NJ · Member since 2017 · 97 posts · 60 votes
I picked up a 2 unit multi-family property. Unit 1 is a 1bed/1bath. Unit 2 is a 3 bed/1 bath. I've accounted for me paying the water and sewer in my numbers but have also had others recommend I pass this cost down to the tenants by splitting it 1/3rd to Unit 1 and 2/3rds to Unit 2. I plan on raising rents $100 for each unit so either way, I'm covered. Looking for ideas! What have you guys done in this situation?
Real Estate Broker · Manchester, NH · Member since 2014 · 630 posts · 420 votes
9y
I think you need to consider your local market and if other landlords are doing this @Erik Cabral. If I was trying to rent an apartment and told someone "You have to pay heat, hot water, electric, water, and sewer", they'd probably turn around and walk out. I have only seen submetered water/sewer for SOME commercial spaces in my market... I have yet to see a building for sale or apartment for rent where the tenant is paying for water/sewer. Make sure it fits in your market!
Rental Property Investor · Natick, MA · Member since 2015 · 128 posts · 188 votes
9y
@Erik Cabral best place to start is by finding out what local regulations allow. It may not be as straightforward as simply splitting the bill and invoicing the tenants. For instance in MA the building must actually be submetered and "certified," all fixtures must be low flow, as well as some other very specific requirements that must be met. Not saying that NJ is the same, just suggesting that you find out what you legally can do and work from there.
Real Estate Broker · Manchester, NH · Member since 2014 · 630 posts · 420 votes
9y
I think you need to consider your local market and if other landlords are doing this @Erik Cabral. If I was trying to rent an apartment and told someone "You have to pay heat, hot water, electric, water, and sewer", they'd probably turn around and walk out. I have only seen submetered water/sewer for SOME commercial spaces in my market... I have yet to see a building for sale or apartment for rent where the tenant is paying for water/sewer. Make sure it fits in your market!
Investor · Wethersfield, CT · Member since 2013 · 371 posts · 191 votes
9y
I echo @Matt Lefebvre, this is a very market dependent issue.
Now, if you know you're going to run into trouble due to tenant abuses there is a sometimes a third option. You could pay water but stipulate (in the lease) that if water usage exceeds 120% of normal (you'd have to explain what this means in concrete numbers and have a sound statistical basis for what defines "normal") the tenants will be billed the difference divided evenly.
It takes a bit of legwork up front and some math, but it's a good way to curb tenant abuse of "free" utilities. Some Section 8 landlords swear by this tactic. The only gotcha is, you've got to be willing to evict someone for not paying their portion of the water bill.
Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
9y
I pay my water in a 4 an 5 family. It is factored into the rents globally with my other utilities. It also affords me the opportunity to insist on conservation and make the adjustments necessary for conservation.
Seems you would be inviting a monthly problem by splitting it your way- Each tenant would be alleging the other is using more then their share. I try to minimize headaches. My real question would be, why in God's name would you want to do this when you have it factored into the rents? Any decent tenant would perceive it as nickel and diming them and if it is not the standard in your community then you would be giving an advantage to your competitors.
Investor · Trenton, NJ · Member since 2017 · 97 posts · 60 votes
9y
Great advice @Matt Lefebvre@Shawn L.! Thanks for the insight. The current tenant (Unit 1) is paying water/sewer. Ideally, he may like the idea that now he only needs to pay 1/3rd once the upstairs unit is occupied (the current owner left if vacant). I've been told by other investors in the area that they pay for w/s on their multies. So I most likely will take this route.
Here you would have to sub-meter the water and provide measured consumption for each unit, to be able to separate the billing (and not have it blow back on you). In our experience, it's frequently not possible, nor cost effective to sub-meter smaller (<8 unit), particularly conversions.
I echo @Matt Lefebvre, this is a very market dependent issue.
Now, if you know you're going to run into trouble due to tenant abuses there is a sometimes a third option. You could pay water but stipulate (in the lease) that if water usage exceeds 120% of normal (you'd have to explain what this means in concrete numbers and have a sound statistical basis for what defines "normal") the tenants will be billed the difference divided evenly.
It takes a bit of legwork up front and some math, but it's a good way to curb tenant abuse of "free" utilities. Some Section 8 landlords swear by this tactic. The only gotcha is, you've got to be willing to evict someone for not paying their portion of the water bill.
I like this idea. @Rick Stein what are your thoughts on the above? Do you have language similar to this on your multies where you pay the water/sewer?
At the end of the day it's all the same, because either your rent is going to account for it or they're going to be paying separately.
In theory that is true. In theory, there is no difference between theory and practice. In practice, there is.
Renters are not always 100% rationale people ... they would choose to rent a place where rent was $50/mo less and they would have to pay a $60/mo water bill over the same unit with higher rent and water included. I agree with other posters in that the first question is do the units have separate water meters, and the second question is it customary in that market for the tenants to pay the water bill ... if yes and yes, then it will normally be better to have the tenant pay rather than raise the rent and include it. Another thing to consider is the water for landscaping, especially if you have a lawn in front or back. Include water and it will get watered. Don't include water and you may find that some tenants may mess with the auto sprinklers to save on utility cost ... again, they are not always 100% rational and would sometimes rather live with a dead lawn to save a few bucks a month on water. If you live in one unit and run the sprinklers off the water from that unit then no problem, at least until you move out and rent it.
CPA · Rochester, MN · Member since 2016 · 48 posts · 51 votes
9y
It wouldn't be a bad idea to consider property management as well:
Assume rent is $800/mo and Utilities is $50/mo average ($850 rent/mo when utilities are included):
1) No PM - Utilities included in rent - $800 profits (rent less utilities)
2) No PM - Utilities not included in rent - $800 profits
3) PM (10%) - Utilities included in rent - $715 profits (rent less PM less utilities)
4) PM (10%) - Utilities not included in rent - $720 profits
I like what was said above about analyzing your current rent market and seeing what tenants are accustomed to. But, if you are using a property manager, make sure to run your numbers to compare the PM expense vs utilities. In the 3 & 4 example, $5 isn't much. But if these are the numbers for a 50-unit apartment building, then 50*$5*12 = $3,000.
Lot's of factors. Depends on the potential headaches involved. The smaller the property, the more likely I'd be to not worry about dollars, and just be as simple and friendly as possible. The larger the properties, the more I'll start to pay attention to those dollar differences.
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
9y
@Matt Lefebvre, there is always an exception to the rule. I have 2 properties in Milford where the water/sewer is separately metered. So now you can say you've seen one. :-)
Both are duplexes, both have long term tenants, and I have no problem getting premium rents. Although to be fair, 3 of 4 of the units have fenced private yards. (I allow dogs.)
I would not, @Erik Cabral, try to pro-rate the water bill without separately metering, it's setting yourself up for problems between the tenants.
One thing to consider: the water bill typically stays with the property, not the tenant, so if it's not paid by the tenant and they bolt, you'll still owe the bill. In addition, the water shutoff for the town is at the street, so if one tenant doesn't pay the bill and the town (or water utility) turns off the water, then both tenants are shut off. I address this by having the utility notify me by email if a tenant gets a shut off notice. I then follow up with the tenant until it is paid, and if it is the day before shutoff and it remains unpaid, I pay it myself and bill the tenant.
Rental Property Investor · Albany, OR · Member since 2015 · 312 posts · 136 votes
9y
In my market we use RUBS (Ratio Utility Billing System). It splits the water usage based on square footage and occupancy. I like this because it is helps tenants to be more water concious and reduces my expenses. The drawback is that it's harder to implement and can be tough to enforce (you may not have any recourse if they don't pay the water bill). You also need to consider if it's legal in your area and what other landlords are doing. If you're the only place charging for water you might have a hard time. Are these attached or detached units? On single family (or detached multi family) the tenants often expect to pay for their own utilities. If it's an attached multi family it may be partial tenant partial owner.
Investor · Trenton, NJ · Member since 2017 · 97 posts · 60 votes
9y
@Ann Bellamy thanks for the info on the water bill staying with the property and how to deal with that when needed.
@Jake Thompson one of my partners mentioned RUBS when dealing with larger apartment complexes. That is what I was referencing in my original post. This is an attached multi-family and I feel as if the tenants would expect to pay their water. I may just keep things simple and take care of this since I've accounted for it in my numbers. Thanks!
@Ann Bellamy thanks for the info on the water bill staying with the property and how to deal with that when needed.
@Jake Thompson one of my partners mentioned RUBS when dealing with larger apartment complexes. That is what I was referencing in my original post. This is an attached multi-family and I feel as if the tenants would expect to pay their water. I may just keep things simple and take care of this since I've accounted for it in my numbers. Thanks!
Hi Erik, I know it's an old thread, but was wondering if you ever found out whether landlords in NJ are obligated to pay for water in multifamily houses? We are renovating a duplex and thinking of separate meters for the two units.
Investor · Linden, NJ · Member since 2016 · 190 posts · 116 votes
7y
@Account Closed some towns in NJ the water is thru a private company and you can separate. for instance in Linden you can add water lines to correspond with the units. the tenant would be responsible for putting it in their name and paying the bill. In Newark you cannot do that since the city controls the water. In all cases the landlord gets billed for the sewer.
Investor · Trenton, NJ · Member since 2017 · 97 posts · 60 votes
7y
@Ann Bellamy I was advised to keep the meter as one and pay for the tenants water since the cost to break it out wouldn't make sense. Maybe in the long run it would but as mentioned (from this ancient thread ;) I accounted for water when doing my numbers. I'd do the math to see if it works out for you if you haven't already. If you did, what did you end up doing?
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
7y
Erik, I bought them separately metered. Water is cheap in the municipality where these are located. That may not be the case in your area.
If the numbers don't work to separate them, well, then that's that. But consider if you are going to hold long term. The cost of water will only go up. Likewise, the cost of the contractor to meter them. So paying a contractor with todays dollars may save you grief with tomorrow's water bill.