Multifamily property with shared utilities - help!

15 Replies

Hi all!

I recently purchased a 4-plex (two buildings with 2 units per property) in Phoenix, AZ. Because the units are not separately metered in any way, I pay all utilities. I am finding that with each utility bill I have one fun surprise after another...and they are always higher than expected. The property was vacant until just a few weeks before I purchased it so we had very little to go on to determine what utility costs might be and of course we underestimated... such is life. Anyway, I wanted to put a few details out to the community to see if anyone has any suggestions:

1. Electricity bill is fairly high - each unit has window AC units (some units have 2). Does anyone have any tips or tricks as to how to optimize their function to reduce the bill, or even perhaps another suggestion entirely regarding HVAC?

2. Separate metering - any suggestions in this regard? Has anyone found that this is a cost-effective thing to do? My goal is to convert all of my units to government program funded, so this might not make sense since it seems as though most government programs require that the landlord pay all utilities anyway.

3. Has anyone had experience installing solar and have any feedback on whether this makes sense for a property like this?

In general, does anyone have any tips/tricks as to how to keep utility bills low in a situation like this where it is almost impossible to isolate where there may be an issue since there are not separate meters and therefore no way to tell which unit is using what and where a breakdown might be occurring? I plan to hold the property for 5 years at the very least so I'm not opposed to making up-front investments that will help my return over time and of course improve my numbers to maximize a sale price when I decide to sell it.

Any suggestions would be GREATLY appreciated!

Hey Jessica!  One of the fastest ways to turn the financials on a property like this is separate metering.  That may not work for you, as you pointed out, but I would go for it.  

Solar is a good idea, but I think the payoff might not work on your time horizon.

Take care and good luck!

There are a ton of posts about splitting the utiliy meters, most are proponents of moving forward with non-shared metering.

I don't have any experience with that.  It sounds like you might be in the lower income niche, which I do have a lot of experience with.  Some tips:

- Call the utility company to find out what the one to two year trent on usage/costs has been to help get an idea of appriate monthly costs.  Craigslist ads may help too if landlords often include utilities in rent.  Its important to understand what normal usage is.

- Send the tenants information and tips on how to lower utility costs.  Give them a sheet at move in and keep reinforcing it, especially when costs are high.  Help them tie their decisions to their costs or future increases.

- If costs are high, send out a letter saying you noticed a spike and that you will be scheduling an inspection to look for issues with the property, like leaks.  Reinforce they should report things.  They may also report things they or their neighbors are doing, like filling kiddy pools.  Pools should be prohibited in the agreement.

- Where you can get utilities seperately metered, offer annual rebates if they keep their utility costs low, and annual increases for utility costs above average.  Tie their usage to their rent.

Best of luck!

@Joe Hines and @Michele Fischer Thank you SO much for the responses! I've only been involved in SFR investing previously so this is all new to me and I've not been blessed with excellent luck. So thankful to have this community to turn to! TY for your suggestions!!!

Hi @Jessica Jay-Maleski , this is a difficult questions but there are some answers. I lived in an apartment building in San Diego and they took the trash, water and sewer bill and split it equally between all tenants. Not fair, but no one seemed to complain. The other option would be to increase rents, but this is less desirable because your rents may be higher than other units around you.  

I have been in the solar industry for 8 years, this may be a good option. Based on your payments, you could charge your tenants to cover your solar payments. Installing meters may be expensive, if you install solar, products such as Enphase allow you to install CTs to monitor the usage for your units. I'm sure other products allow you to do the same. 

Hope this helps and best of luck! 

Do you have space for a garden? I've got solar on our rental, and shared metering between two units. We have a local organization called the Green Apartment Network, that attracts tenants who value sustainable living.  We include utilities in the rent, with the understanding that there's an allowance (~100 per month total) that goes for gas and electric. I've kept track over the years and that's what good conservation-minded tenants use to keep the house comfortable. If they go above this, I let them know, there's usually something that can be addressed. We also have all high efficiency mechanicals, so the energy usage isn't much.

The reason I asked about a garden is because invariably, green-minded tenants love to garden. They also take great care of our units. They're in high demand.

In our area, the solar has to be in the owner's name, so we have no choice but to do it this way. Even if separately metered, it would still need to be in our name because of the solar.

1. I was just talking with an HVAC tech who was repairing an AC at my rental. I told him about how high my electric bills were at my warehouse where I use a portable AC for the office. He said window and portable AC's are the most inefficient systems for cooling. 

2. Separate metering can be expensive, but there are more economical sub-metering companies. 

3. I think 5 years is way too short for a solar return. Solar payments/leases can also be a deterrent to buyers.

4. Which government program? Section 8? Be careful of the numbers they promise. 

As always, seek professional advice.

I would think the cost of separation depends largely on how the place is wired. If the 2 units in a building have separate circuits going to a single panel, then it's technically easy to break it to 2 panels with 2 meters. 

@Jessica Jay-Maleski You could tell the tenants each monthly bill will be split by them. Get the bill, divide by four, charge the tenant. This is time-consuming and most likely will end up with complaints. My suggestion is to talk to the utility company to get an average. Can't get one due to lack of history? Ask them if they can give you an average for a comparable building (same age, size, number of units). Once you have an average, break that into four equal parts and add it to their rent. If you have a laundry room or common area lights, you may want to split the bill by 5 and pay a share but it depends on what your tenants can tolerate. Let's say the average is $400 a month. You split it by four and each tenant owes you $100. Some months the bill will be more than $400 and some months less but it should average out. A couple tips: increase the bill by about 10% to cover tenants that abuse the utilities ($110 per tenant, $40 extra for you). You can also add a clause to their lease that says, "rent includes up to $100 in utility use. Anything above that will be billed to the tenant."

You can do the split the utilities and bill them but then it's another chore for you every month. I prefer to build it into the rent and then it's a business expense that's set up on autopsy. 

I will look into splitting it up one day. 

I would call utility companies to give you an audit of usage per unit. This will tell you if there any leaks or maybe shorting in the wiring, it will also let you know which unit is using the most and why. If you are d or c neighborhood tenants might have old fridges or other appliances that generally consume more power. This info will give you choices on what to do n how. Make it part of ur lease that tenants r responsible for all utilities than just do the work of figuring how to have them pay. I manage in Barstow Ca, I think the climate is similar to Arizona where you are, I install window swamp cooler, those guys cool up to 1200 square feet house very effectively n the power consumption is s no more than a typical appliance. Good luck, you don’t have big problem.

@Jessica Jay-Maleski , since I'm sure air conditioning is a must in your area, I might consider upgrading the units to have ductless mini-split air conditioning systems. They are MUCH more efficient than a window a/c and you don't have the added cost to run ductwork.

If you are unable to separate the electric and depending on the size of the units, you might be able to use 1 compressor per 2 units and just have a couple air handlers in each unit.

These kinds of units could also provide heat and more efficiently than electric baseboard.

I think you would save a nice buck on energy bills and perhaps be able to raise the rent a little, especially if the tenants are currently providing their own window air conditioners.

What @Kevin Sobilo said, and also add insulation. 

Insulation should be checked/upgraded  before any other improvement. You can get an energy audit and are likely eligible for rebates. We did this on all of our rentals.

@Jessica Jay-Maleski undefined I learned this the hard way as well, some of my experience.  The best way I have found to keep the utility bills down is to make the tenants responsible for paying them, funny how that causes usage to drop significantly.  

1. For tenants that have used window AC units I charge a fee, per AC unit, per month.  As you said, they use a lot of power,  the fee helps to recoup some of the cost.  

2. Separating utilities is something I have done in almost all of my units, the last 2 should be done in a month.  It all cases for me the cost of separating the utilities has been worth it.  

3. I have solar on my own house, and love it, but not on a rental.  I don't know your market, but my local market people don't appreciate the value add of solar, so on resale you tend not to get much of your investment back.  

Something else to consider, I read about some people who use a RUBBS (resident utility bill back system).  It is basically what some people have suggested, most commonly shared breakdown depends on either square feet, or number of people per unit.  

Good luck and let us know how you make out.

Russ

@Jessica Jay-Maleski splitting into separate meters is too costly on that property to be worthwhile, plus the government programs wouldn't give you any benefit. I'm sorry you are having this problem. I would convert the other three units to the ductless systems if that seems like it will number out. The back left unit already has one of those. Solar would not number out in my experience. Let me know if I can help!

Solar would not be worth it if you are planning to sell the property.

separately metering the property would make sense if you plan on passing the utility costs on to the tenants and that is the norm for the property area and rental comps.