WHO PAYS UTILITIES??!

Question

Hey Everyone!  My husband and I are looking at purchasing a 4-unit property in the St. Paul area of MN.  This would be our first deal, and we both have so much to learn.  We both are wondering, who pays for utilities?  It seems (from the MLS listing) that the current owner was paying EVERYTHING....(Water, Sewer, Gas, Electricity, Garbage, etc.)  Is this right?  It changes our cash flow from $1150 to $350 depending on who paying the utilities haha.  So definitely a make or break kind of deal.  What do you think???

Jon Holdman · Answer

Check ads for similar rentals in the same area.   This varies a lot depending on local custom and the type of property.  It also depends on how the properties are set up.  If you only have one meter for the different utilities then you will have to deal with splitting up the bills.  This may affect the amount of rent you get, too.

Jimmy Dudley · Answer

I currently pay all utilities and believe me you have to look at the expense over the course of the whole year. In the winter and summer it can hurt. If you can get some estimates consider the costs to divide the utilities with separate meters.

Bruce Runn · Answer

Regardless of what is normal practice in our area, what it says in the lease will override what the practice is.  If it says, owner pays, that's the end of discussion until you get new tenants/leases.  Ask for copies of the leases, don't just rely on what the realtor says-lol.  The often don't understand multi family leases if they aren't experienced or have their own.

Tim Swierczek · Answer

@Linnea Giles All the points about separate metering is true. Generally I find that what is typical in our market is that the tenants pay for electric electricity and gas and you would pay for trash and water as a landlord typically.  If the lease is set up for the landlord to pay but are not metered separately you can always change it to portioned billng when you write a new lease but there are state laws regarding how you can do that. PM me and I can point you in the direction of how to do it.

Ryan Schroeder · Answer

1. The listing agent should be able to provide you with the answer to who pays what (electric, gas for heat, gas for stoves, water/sewer, garbage) and estimates for each.  Any half way decent property owner will be able to provide annual costs for all past years for anything they pay...but don't automatically trust the data you are provided.  Conduct your own research and the utility companies can provide estimates for their typical customer...but they won't give specifics for this property without a written/signed consent

2. In this market, even if there is one central meter for gas/electric there is a growing number of ads I see where the owner is having tenants split the cost of utilities...sometimes even for water and garbage

3. Regardless of 1/2 above, the total cost to the tenants of living in the building must be within reasonable market parameters so if foisting utility costs upon the tenants takes that total cost outside the market you won't be able to rent the place.  Go to Craigslist and do a little market research on what rents are being charged for comp units in the specific submarket...know that submarkets are important.  Generally, Minneapolis gets higher rents than St. Paul and Summit Hill, Grand Hill, Merriam Park, Mac Groveland, Highland commands more rent/square foot than places like near north, Frogtown, east side, est.

Good luck

David Barnett · Answer

@Linnea Giles Jon and Christopher make some very good points about separate metering, etc.  I have two duplexes in Saint Paul, and in both of those properties, I have the tenants pay for the utilities that I can (based on metering, etc).  I generally pay for trash removal and water, but I have my tenants pay for electricity, gas, heat (if possible), and I also have one of the units take care of snow care and lawn care.  I haven't found that this has turned off the prospective tenants.

Michele Fischer · Answer

Agree with Jon, you need to get clear on what normal practice and what market rent is for your area.  My market is a mix so i can go either way.  When I look at nearby market rents on Craigslist, I read closely to see what utilities are included.  If they are included I subtract the average cost out so I can get to comparable without utilities rent.

If you want to know what the average is, you can call the utilities and ask them to give you trend amounts for the addresses in question.

I have tenants pay electricity and I want to pay water sewer garbage.  This is because unpaid electricity bills don't come back to me, but unpaid WSG does.  I want to control costs that I have to pay, not get stuck with a 3 month in arrears bill.

I advertise at the lower rental amount then include the statement below in my ad and application and let tenants pick.  The only reason I give the option is that some low income folks qualify for assistance, but only if it is int heir name.

Tenant pays all utilities.  PUD account is in tenant name.  Choice to add WSG to rent for $120/month or increase deposit by $300.00 to have account in tenant name.

Christopher Phillips · Answer

@Linnea Giles

It depends on the availability of separate meters for each unit.

If there are separate meters for electricity and water, the tenants will pay those.

If there is only one heating system, you would pay for the heat and somehow include it in the rent.

If you have separate boilers or furnaces for each unit, then you should be able to charge each unit separately. However, that could be a problem if you have oil heat and there's only one oil tank or there is only one boiler/furnace for the entire building.

Do you know the situation with meters and heating?

Todd Dexheimer · Answer

In our market the tenant typically pays the electric and gas. If it is not separately metered then you can implement a RUBS (basically splitting the bill based on usage of each unit due to occupancy, size and fixtures). You may need to wait until a lease expires to implement this system.  Depending also on the set up, you could separately meter the utilities.

Linnea Giles · Answer

Awesome thank you for your advice!

WHO PAYS UTILITIES??!

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