Multi-family where tenants pay no utilities!! - Posted by sb2002

Posted by GL(ON) on July 16, 2002 at 11:42:28:

About 40 miles north of Rochester… across Lake Ontario in Canada LOL.

GL(ON) is my initials plus the official abbreviation for the Province of Ontario (ON)

Up until 1950 there was a ferry boat service from Rochester to Cobourg Ontario, where I live. It was quite an operation with boats big enough to carry railroad cars, autos and passengers.

Multi-family where tenants pay no utilities!! - Posted by sb2002

Posted by sb2002 on July 15, 2002 at 11:46:47:

I found an incredible money maker, it’s a 3 family house selling for $ 145,000, where the tenants have been respectively 5, 8 and 9 years. It produces a monthly gross cash flow of $ 2,480 (650, 710 and 1120) BUT the tenants pay no utilities, it’s all paid for the owner… The good news is that seller is willing to provide “seller financing” for 25% of price (approx. $ 36,000)…

My question is, being the tenants have lived there so long, how could I make them pay for at least part of the utilities? Any types of improvements suggested? How hard to handle such a situation where tenants have “enjoyed” free electricity, hot water and heat? I noticed in one of the apartments the AC running all day long even though apartment was empty… House is located in the Northeast…

I could probably have separate meters for electricity, for heating oil probably not a good idea since not enough space in basement… Any suggestions will be appreciated!!!

Re: Multi-family where tenants pay no utilities!! - Posted by JFinke KC

Posted by JFinke KC on July 15, 2002 at 14:23:47:


First off, how do you know that the utility costs are not already included into the monthly rent. Check local competition for comparable rents. If the rents in this building are on the high side, chances are the untility costs are being compensated for already and installing spearate meters would be a pointless cost for you. If the rents a very comparable to buildings where tenants pay their own utilities, then instead of going to the expense of separating the meters, just raise the rents accordingly. You do realize that spearating meters can costs several thousands of dollars?

Secondly, I would not consider this an “incredible money maker”. The $2480.00 is not gross cashflow, its gross income. Cashflow is after all expenses and debt service have been paid. Your expenses will include taxes, insurance, maintenance, lawn care, snow removal, utilities, etc. Your debt service alone will run in the $1000 range depending on the deal you cut with the seller financing. That leaves roughly $1400 to cover all your expenses. Taking a wild guess your expenses may eat 40-50% of the $1400. That still leaves a decent cashflow but I wouldn’t call it “incredible”. You need to confirm all the expenses involved before purchasing.

If you say that’s why you should separate the meters keep in mind the costs of separating the meters. Really, you need to analyze the market rents and if these rents seem to cover the utilities already, then I would negotiate for a lower price.

Good Luck,

JFinke KC

Re: Multi-family where tenants pay no utilities!! - Posted by sb2002

Posted by sb2002 on July 15, 2002 at 16:00:47:

Thanks for your comments! In reality the rents are “a bit inflated” to what’s common in the market, so you’re right, it seems as a way to compensate for not having separate utilities.
I requested the last 3 years of the seller’s Schedule E for income and expense as part of the contingencies in my offer.
I misused the term cashflow, what I meant was Gross Income. As a ballpark, I’m thinking if I can keep at least $ 500-600 per month NET CASH FLOW, then I’ve made a good deal. Does it sound reasonable?

Re: Multi-family where tenants pay no utilities!! - Posted by GL(ON)

Posted by GL(ON) on July 15, 2002 at 23:28:56:

Around here it is common for landlords to pay utilities (heat gas hydro and water bills).

Even on buildings with separate meters.

I have tried to get my tenants all paying their own, but it can make it almost impossible to get a renter. They prefer to get utilities “free”.

Also the hydro alone can demand $750 deposit to turn on the service, and a lot of people don’t have that kind of money on hand, after they pay first and last months’ rent to move in.

Apartments with utilities included usually go for $100 to $150 a month more. This used to be fair but the way tenants waste heat and hydro these days it can turn out not to be enough.

The rental market has tightened up this past year and I am trying to get new tenants paying their own utilities as apartments become vacant.

The real strong resistance comes from renters of cheaper studio and one bedroom apartments, they don’t seem to have the extra money. However as single tenants they also use less hydro so if they balk I give it to them utilities included for a higher price.

You are correct that you need to look at the net income after expenses and not compare a building with separate meters to one where you pay the utilities unless you allow for this. But there is no reason to turn down a good deal on a building because you pay utilities as long as you have a suitable cash flow situation.

Re: Multi-family where tenants pay no utilities!! - Posted by sb2002

Posted by sb2002 on July 16, 2002 at 07:48:33:

Just out of curiosity, where in the States are you located?