Should I add a submeter to a house hacked duplex in Minneapolis?

16 Replies | Minneapolis, Minnesota

Hi all - I'm closing on my first house hack soon, and had a question about splitting water. My plumber mentioned that a lot of landlords he's seen don't actually split the water since checking the meter monthly is a bit of a hassle if you don't live there. 

He said the city of Minneapolis won't provide separate meters themselves, but that you can split it yourself. He estimated that it would cost about $1,500 to do the work to split the water and add a submeter to measure tenant water usage.

Should I add the submeter while the plumber is already replacing a corroded pipe, and just get it over with, or would it make sense to use an alternative method of splitting the water?

I've read that some landlords do a 50:50 split, or a split based on the number of people living in each unit.

Another method I saw on bigger pockets was to ask the utility company for last year's average monthly cost, and charge the tenant half of that monthly, and add a clause saying if their actual use exceeds the historical average, they'll be charged for the difference.

For context, I'm hoping to scale up later on, so I won't be living in this property for more than 1-2 years. Thanks in advance for any advice on this!

@Samuel Lindgren   In the Twin Cities landlords typically pay trash water and sewer in multi-unit buildings and it's even typical in single families just a bit less typical.  My theory is that if a tenant is willing you to pay your asking price for rent and then pay water sperate you should just ask more and include water.  Besides if the tenant does not pay the water bill it is the owner's responsibility.  That is not true on electricity and gas, so you run the risk of paying for it anyway and not getting the higher rent which also helps you qualify fo r your next loan.

@Samuel Lindgren a lot of landlords will implement a rubs type system. Say each unit has 2 beds 1 bath you could split the water 50/50 and so on. Otherwise you can take the average water bill and include that amount on top of your anticipated rent and advertise that water is included in the rent up to that predetermined amount.

Originally posted by @Matt Olson :

@Samuel Lindgren your best bet would be to bake the averages into the rent and then advertise owner covers water. It’s too messy to split water especially when there is usually one hot water heater for both units.

Thanks for the advice Matt. I do have two water heaters in the house. Would that change your answer? If not, how would I go about calculating the average monthly amount my future tenants will use? When I called the city to ask what the average water bill was for this property, they didn't know because it was not occupied over that last few months. They did say that each adult usually uses 2-3 units of water per month (one unit is 100 cubic feet, or about 748 gallons), and each kids uses 1-2 units per month as well. Would it make sense for me to estimate their usage by using a formula like the one below?

[Average monthly water cost for tenants = $3.68($/unit)*3(units/adult)*2(number of adults)]) + half the monthly fixed costs (ie the $0.81 clean water testing fee, $5.50-$44 fixed water charge, $6.8-54.4 fixed sewer charge depending on meter size)]

I just want to make sure I do a fairly good job of estimating, and that I'm not leaving out any other numbers if I'm just going to tack on an estimate for water to the monthly rent.  Do you have any other tips on how estimate the average monthly water cost?

Originally posted by @Daniel Anshus :

@Samuel Lindgren a lot of landlords will implement a rubs type system. Say each unit has 2 beds 1 bath you could split the water 50/50 and so on. Otherwise you can take the average water bill and include that amount on top of your anticipated rent and advertise that water is included in the rent up to that predetermined amount.

Thanks Daniel - I had to look up recoupment structures and billing methodologies (RUBS) system, but that looks like a good option too. If I do pay the bill upfront, and then charge the tenants based on my RUBS system, are there regulations that would prevent me from allocating cased on the number of people in each unit rather than the number of bedrooms in each unit? I'd think that if you allocated based on the number of residents in each unit that might get you a bit closer than the number of rooms. 

@Samuel Lindgren Does the city have any data on a years worth of water usage from a few years ago?  If not I'd look at for sale data / rental listings to see if its shared to give you an idea on what it could be for your units.  For example I just purchased a duplex in Minneapolis and the prior owner listed the yearly trash / water amount.

Originally posted by @Matt Olson :

@Samuel Lindgren Does the city have any data on a years worth of water usage from a few years ago?  If not I'd look at for sale data / rental listings to see if its shared to give you an idea on what it could be for your units.  For example I just purchased a duplex in Minneapolis and the prior owner listed the yearly trash / water amount.

Hi Matt - I didn't ask them that yet. But thanks for the idea. I'll try to call back and see if they do have a full year's worth of water usage from a few years ago, and if that doesn't work maybe look at rental listings in the area to see what other landlords are charging for monthly water, sewer & trash (paid to Minneapolis). 

I'd second @Tim Swierczek s approach.  Bake it in to the rent.  It's common for landlords to pay this and water/sewer is part of the same bill from my experience.  you'll want to keep it simple to manage the property while you plan to scale up, and from a tenant perspective you may get more questions/hassel than it's worth trying to make sure you did it right.

@Samuel Lindgren Here is an idea for you to consider. How will the tenant pay their rent, via an online payment system? It's quite easy to have the water in the owners name and simply enter the monthly bill x 1/2 before the end of the month into the online payment system, for it to be added to and due by the 1st of the next month. If it's a simple duplex of approximately equal size, most tenants are happy to pay only half the utilities. And you can likely yield higher rents without utilities included as folks do not always fully internalize those costs when looking for a new place to live.

@Alex Forest Thanks for the suggestion. I'm not sure what software I'll be using to bill tenants yet, but your idea seems pretty easy to implement. Even though I'd get billed on the 15th for prior months usage, I could tack on half of that bill to the tenants next invoice on the first of the next month. 

Originally posted by @Samuel Lindgren :

@Alex Forest Thanks for the suggestion. I'm not sure what software I'll be using to bill tenants yet, but your idea seems pretty easy to implement. Even though I'd get billed on the 15th for prior months usage, I could tack on half of that bill to the tenants next invoice on the first of the next month. 

 Yes, or let a month lag.  Then report the full amount. Just be clear and consistent and report the date range associated with the associated amounts. If you dont use software, that's fine, just send the same via email (full bill divided by 2 with date range) around the last week of the month and they can add it to the rental check. I've handled it both ways and its worked perfectly fine and keeps it simple.

And, for the first month or two that a new tenant moves in, you might send a note that there is no bill due at that time due to the date lag (and state the current date range), but around this time next month, they will see it.  It just starts to form the habit and makes it go smoothly.

I suppose it depends on your tenant base too....if you will be working with folks that use email or can navigate an online payment system easy enough. If not, then perhaps these approaches would not work well.

@Samuel Lindgren I am going to help direct what's best to do in this case but also go a big step beyond into explanation of why to do it that way, in the business of residential rental housing because this question comes up way too often and those preaching book smarts simply don't know. 

If you look around at what professional landlord operations do, those of some considerable time, experience, and generally with that size, it's almost completely universal that as @Tim Swierczek said Water, Sewer & Trash is paid by landlord and included into rents. This is not a response to some memo everyone got, or just random chance, it's the best method for operating efficiently, predictably, and with scalability. 

Even with any 1 of the countless systems, gadgets, tricks and what not, how much time is wasted chasing one's tail to do some exact billing on water/sewer? And for what risk mitigation? How high can a water sewer bill be? See that's the thing, it's stepping over dollars to save pennies. Those who provide included utilities include in lease a clause on excessive use/ abuse of such and all the recourse fun which can well exceed 100% of hard costs so, any argument of "oh what if it's a $1,500 water bill" is answered there alone, tenant is liable. Not to mention are you aware how much water it take to make a $1,500 water bill? I do, because yes, seen it, it's 11 Olympic swimming pools or about 27 days of water running wide open at main feed, 24hrs a day, non stop. So completely unrealistic, and in the case I had the meter was broke. 

Now, the important scale part all but nobody talks about on this item. It's good practice to learn how to average, quarterly track and update hard/soft costs of operation such as water, sewer, trash because IF you ever want to scale up into commercial side of things (5+ units) than this practice of mean averaging will be a daily norm. Talk to someone with a 88 unit property about such a thing like figuring water per person etc and they will laugh at you and say you have wayyyy too much time on your hands to mess around with such petty stuff. For example, every think about the heat in a MFH? We don't try to sort how many therms per adult/child/bedroom, that's ridiculous idiocy to attempt. We develop a solid # to start at per unit for billing allocation in rents for ____, and our per unit allocated budget for the cost of such. Quarterly we simply review the #'s, what did we charge/collect for ___, what did we pay, what was the result. Than we review it annually AND we adjust from there. As costs of such increase, we simply take that % increase to hardcost and do that to billing rate per unit. Each unit has an accounting for heat, water, trash etc. 

Not to mention all inclusive or more inclusive units often can charge a premium for such convenience adding inn ancillary profits. 

Short version, if you want to run things like a business and not a hobby, than it means accounting like a business. And, sell it as a feature. 

@Samuel Lindgren if your dead set on figuring out metering, there is private meters and services you can buy and install to track and bill down to each individual faucet if you want to. It's easy to sort cost per unit as city has the billing price per unit on your bills. 

Again, stepping over dollars for pennies, but if your hearts set on it just google a bit and there rather easy to self install if want. 

@Samuel Lindgren  

I think it's really up to your personal needs - if you can set something up that's easy for you to manage and allows you to recoup some of your costs, do it. I have spoken to landlords with 100+ units that use the RUBS system to help increase the NOI to make their properties "worth more." Personally, we have a property under construction where each unit is sub metered because we plan to offer in unit laundry. We also have a triplex where we pay the water bill for the tenants and include it in the rent. That building has coin laundry so we haven't considered added meters. I take into account the location of the property along with amenities.

Also, if you're considering scale, how many units do you really think you're going to have?  Will you be self managing?  Can you set up something efficient and easy to allow you to recoup your expenses?  I generally think if you can reduce variable expenses, that's a good thing.