How best to split out Water and Gas to Invoice Tenants

Question

Hello all!

I'm looking for my first property (live-in duplex, triplex, or fourplex) and after running the numbers, I found one that cash-flowed pretty well for a reasonable price at conservative estimates (plus my wife loves the house). However, after discussing more with the realtor it was disclosed that the landlord was responsible for water and gas, which very much destroyed the cash flow I thought I had. The property is a triplex, converted out of an old house that's been taken care of very well (as far as I can see without a building inspector), so the water and gas are not split out into separate meters for the tenants (electrical is).

In order to make this deal work, I'd love to figure out a way to invoice the tenants for those utilities. I've thought about splitting the water bill out proportionately to the number of tenants and then the gas bill by square footage of the units. That seems to be the most fair for the water, but since I think the gas is used not only for heat but also for stoves/ovens, I'm curious to see if anyone has another way of splitting this out.

Any thoughts?

Thanks!

Caleb

Bryan O. · Answer

@Caleb Gray how much does it cost to actually split the utilities out? Also, does each unit have its own furnace and water heater?

Be careful that you never ever make money charging back utilities like you mentioned. From what I understand that is illegal. I do a flat rate in the 1 place that is not fully split out, and not based on each month's usage. I looked at what the typical costs were through the year (some utilities will tell you if you call), then split it out based on the size of that unit in such a way that I would never be charging more than their fair usage. Notice I said size of the unit, not number of people. You don't want to "discriminate" based on familial status, and the sq ft never changes and can't be argued. Do I lose a little money this way? No, because my time is valuable. I spent nothing extra and it takes no time to implement. Trying to monitor that bill every month, then divide it out based on sq. ft., then communicate that to the tenant, then deal with them going, "Why is it bigger this month? We took a 4 day weekend away and should get a lower rate! What if we use colder water when we shower?", then collect the different amount each month... no thank you.

Best of luck!

Caleb Gray · Answer

Thanks Rajiv! The units are of very different sizes (2/1.5, 1/1, and a studio) so I'd need to make these proportionate in some way. I'm kind of against the flat rate because I could either make money or lose money on it, and I'd prefer it to be a wash, as close as possible.

There's something called the RUBS method that I've found, does anyone have experience with that?