Real Estate Investor · Los Angeles, CA · Member since 2016 · 31 posts · 7 votes
Hi all,
I'm evaluating a duplex deal right now in Kansas City, Missouri. It's my first ever multi-family deal, so learning a lot right now.
The broker says that tenants pay gas & electricity, and the owner pays water, sewage, trash. Is this normal?
The water meter is a single meter. The broker is claiming that this can be billed back to the tenants. Is this true? I can't figure out the exact answer for whether its legal to bill back water if its a single meter.
If its a single meter, can I change this to individually metered? Or is the cost for doing this typically a lot? This is an older building (1954).
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
5y
This is the case sometimes, especially with duplexes that were made by converting a house. You can bill back the tenants, although you might have some issues with tenants being angry because the other tenant (supposedly) used more. And you need to make sure you are billing back no more than the amount the utility company billed you. I believe it's illegal to make a profit on utility billbacks but don't quote me on it. (It's always a good idea to check state laws on these sorts of things.)
For us, when it's a duplex or so, we usually just advertise the units as "all bills paid" and charge a bit higher rent. Not ideal, but it's worked fine in the few instances we have like that.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
5y
This is the case sometimes, especially with duplexes that were made by converting a house. You can bill back the tenants, although you might have some issues with tenants being angry because the other tenant (supposedly) used more. And you need to make sure you are billing back no more than the amount the utility company billed you. I believe it's illegal to make a profit on utility billbacks but don't quote me on it. (It's always a good idea to check state laws on these sorts of things.)
For us, when it's a duplex or so, we usually just advertise the units as "all bills paid" and charge a bit higher rent. Not ideal, but it's worked fine in the few instances we have like that.
Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
5y
In order to bill tenants you will need new leases or new tenants. Without knowing how old the building is hard to tell what the cost for permits and the water company to provide meters. Call the metro water company see if allowed, county permits, $2200 to $3000 depends...
In California, it is illegal to bill anyone for water since you are not a water purveyor (state-authorized water company, I think that means). We ran into that legal issue when we wanted to split a large parcel of land and sell two parcels. We could not legally allow the two parcels to share one water well and share the costs to operate and maintain the well because we are not a legal authorized water purveyor.
In my area, the cost for water for each unit is about $50 per month, or $600 per year. Add it to the monthly rent and "forget about it", as we Italians are famous for saying.
You will never recover the cost to install separate water meters, a new water main to the building and the cost to install new water piping in the building to divide the piping to two systems. I am a plumbing contractor and the minimum cost for the piping, not including the meter installation, is about $7500 and that $7500 could be much better used to purchase another property.
In Kansas City, it is normal for tenants to pay for their utilities. Billing back is fine, but you are not supposed to profit from the utilities. My entire portfolio has utilities paid for by tenants, only one of my 4-plex buildings has a bill back system setup right now with inherited tenants that have been there for decades. I set all of my units to revert-to-owner after my tenants leave, so I'm only paying utilities during turnover. The water meter can be changed but it will cost a couple thousand. I'm guessing this was a single family converted to a duplex.
Rental Property Investor · Colorado Springs, CO · Member since 2020 · 433 posts · 284 votes
5y
We have several duplexes that all have single water meters. Tenants pay for gas and electric and we cover water and sewer. If you build that Expense into your calculations it goes to into their rent anyway. We’ve split meters on gas and electric, but still in the water meter gets kind of pricey in my opinion. Alternatively you can bill them back their portion of the water bill when it comes in, but my mind This is added brain damage.