Turning sfh into a mfh, how should utilities be handled?

Question

Hello BP folk! I am currently in the process of purchasing a SFH that has the perfect layout to add a wall and kitchen and make a duplex. I already got permission from the county so that is one major hurdle out of the way. My question is related to utilities. I can have a new electric/water meter added or I can offer to pay the utilities myself. I am buying as a primary residence so I will be living in the smaller unit for a year while renting the larger portion of the home. Paying the utilities seems to be the easiest but I am smart enough to know I'm not smart enough so I appreciate any input from those who have been down this path.

Julien Jeannot · Answer

Either way works as others have pointed out.

Its convenient to have separate meters, but the cost may not be worth it. Also consider the exit of the property. Does it make sense to sell the property with 2 meters or 1?

Either charge them for the utilities. I've got a duplex with shared water, monthly expenses doesn't move past $30/unit so I don't worry too much. It get rolled into the rent.

Ryan Thomson · Answer

@Kyle N. you can set this up however you choose. Just be clear with tenants and have it in the lease. In Colorado Springs where I house hack, I want to incentivize my tenants to use less utilities so I don't have to pay for as much. For this reason, I divide the total bill by everyone.

Bonnie Low · Answer

Midterm guests expect utilities to be included in the rental price. It's one of the reasons you are able to charge more than long term rents. It can be difficult to estimate the amount of usage before you start renting it out but I'd start with expecting it to be double what you are currently using if you're living in the place full time. Depending on the type of guest you end up with - say travel nurses, for example - their utility usage may even be less than you are using because they tend to spend very little time in the home and when they are there, they're mostly sleeping. We do have one property where there is a long term tenant in one unit and a midterm tenant in the other. We put a second electric meter on the property when we did the remodel so power is separated, but water and sewer are not. In this case, we pay the water/sewer bill ourselves, which covers our midterm tenants, and just back bill the long term tenant for her portion. Our total water & sewer bill is about $100/month for both units. We add $60 to the tenant's monthly rent to cover her water usage since she has the bigger of the two units. It's not an exact science, but it's sufficient.

Theresa Harris · Answer

How long are you planning on renting it to each set of tenants as a MTR?  Often there are connection charges.  If you are renting to them for a month or two, I'd either include utilities in the rent (but list separately) or split them between the two units.  If you include them, in the lease you could say water up to $50 a month is included in the rent-split 50:50 between both units-or whatever it is-any overages will be additional.  Some tenants won't think about usage if they don't see the bill themselves and pay for it directly.

Alecia Loveless · Answer

@Kyle N. I pay the water/sewer in my buildings.

In terms of adding a separate electric meter and separating it out it’s my understanding it can cost up to $10,000+/- to do so many places.

I’m under contract to buy a 5 unit that only has 1 electric meter and we’ve just accepted the fact that we’re going to have to pay the electric bill for everyone and market units as “electric included” and raise rents accordingly. We’re already having to move the main box that is located in a bathroom and is therefore not up to code and have it upgraded to the cost of $13,000 once we close.

If it’s allowed in your jurisdiction I’d say electric included, increase the rents accordingly, and you may have to figure that out as you go based on AC usage and other variables because if you’re a little off in your calculations starting out it will still take a long time to reach the cost of adding a meter.

Turning sfh into a mfh, how should utilities be handled?

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