Quadplex with only two meters, how should I handle tenants?

Question

I'm closing on a quadplex this week but it's only has two electrical meters.

The property currently has tenants in place but the rents are low so I will be raising rents to meet market standards. So I believe they will not be able to pay the higher rents and will end up moving out.

Should I put the accounts under the LLC and split it up between the two on each meter or should I have the tenants deal with it? I don't want this to turn into an issue between tenants so I am leaning towards raising the rents with electricity included.

Any feedback would be appreciated.

Jon Kelly · Answer

@Julian Perez @Brenden Mitchum explained it very well. I would start with RUBS option and be VERY clear how each tenant will be billed.

RUBS will be best option for your NOI, however this will lead to some disagreements between tenants. There's a >95% chance at least one tenant will blame the other for using too much electricity.

If you include it in rent you will have less headaches, but also less cash in your pocket each month. There's a >95% the tenants will use more electricity than they would if they were paying for it.

A third option is to install 2 more electric meters. This will cost $3k+ per meter. If you plan to keep this long-term it could be worth exploring.

Brenden Mitchum · Answer

Hey @Julian Perez

Yeah you really only have two options: 1. RUBS (utilities under your/your LLC & bill back based on occupancy or square footage) 2. Include it in the rent

RUBS is tricky to manage fairly. More than likely one party will be spending more than their fair share of utilities. However, it does allow you to keep utility usage lower than if you include it. If you value resource conservation like I do, this pro outweighs the management difficulties.

You don't just "let them deal with it" though. You'll want to have a clear system and rules for how folks are billed. Like I said, you can do this by occupancy or square footage.

If you decide to go with RUBS, I wouldn't recommend raising rents and instituting RUBS on day 1. Also, be sure you're very clear in the lease regarding how the tenants will be billed back for utilities. Also, explain it to them in-person or over the phone to make sure they understand.

Hope this helps a bit! Please, feel free to reach out if you have other questions or just want to chat!