Buying Three Apartment Buildings, Switching Utilities To Tenant Pays, How To Go About This?
We are in the process of buying a total of 9 units which in most of the units the owner gets stuck paying water and heat, which I really hate to do. I was thinking about raising the rent because I thought the rents were below market but then I thought maybe a better idea would be to add water meters so the tenants could pay that themselves which would give me an additional 275.00 per month cash flow. Which would you investors choose to do? I know separating utilities is a good selling point down the road when we decide to sell also.
Also in my welcome letter, how would I go about tell teh tenants that the utilities will be switching to them having to pay them. How would I word this to make it sound good so they don't hate me before they really even meet me. I already have a nice welcome letter, so just need some ideas on how to add the utility part. Thanks.
Are they currently under leases? One thing we've done is becuase they typically have to put a deposit down for water, we have taken $100 from their sec deposit (with their permission) and applied it to that months rent so they can pay $100 less.
Between raising the rent, I would certinaly do the util bill thing, less paperwork and billing for you, plus levels out your cashflow (instead of dealing with up and down bills)
GL
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Another idea is to simply charge the tenant for water and heat. Make it a flat fee based on the size of the apartment. I'm not sure how old the building is you are talking about but it is ususally cost prohibitive, in my experience, to convert the utilities over.
GOOD LUCK THOUGH!
I thought of doing this but that would mean increasing the rent and that was what my question was, which would look worse to the tenant increasing the rent or making them be responsibe for the utilities.
I would definite weigh the cost of having to add seperate water meters. I know I've priced it and it was going to cost around $400-$500 per meter. Doing 8 meters will add up quick.
I am by no means a guru but we generally do not raise the rents immediately when taking over a place. We give it a couple months and buid up a little trust with the tenants. We try to show them we are going to take care of the place. So far, it has worked fairly well. We haven't lost many tenants yet. In the last month we sent out 11 rent increases and it looks like we may lose only one. Our rents are inline with the market and the rental market in our area is strong.
Don't worry about your tenants hating you. No matter what you do most will. We just try to treat them fair.
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In my leases I don't put rent is $500/mo including utilities but rather $450/mo plus under the utilities section I write $50.
When people call you don't have to tell them the whole story about how they pay you, not the utlity company....just simply say that heat is not included.
Haven't you guys had trouble paying for the utilties though? I mean don't you find that people take advantage of that with for example having the air conditioner set to 58 degrees and the heat set at 80 degrees all day? In your experience have you ended up paying a lot for utilities cutting into your cash flow?
To kburke or anyone who wishes to give me their opinion;
If I did decide to raise the rents in a couple of months after I purchase these properties, how much would be too much? Lets say they are 25 to 30 dollars below market, is that too much in increase them?
I think 35 below going rate would be an ok rase. When I liven in an apartment they hit us with a 80/mo increace, and we were already paying utilities.
I have looked around here for duplexes and the ones for sale are showing tenents renting for 500-600, and apartments near by are going for 600-800. and the seller wants $250k for the duplex. I gave up becaues therre was no room for cash flow.
I know what you mean about these people asking way too much for duplexes, on half the ones I look at there is a negative cash flow. Pretty hard to come by a good deal but they are out there, guess its good to have patience (which can be hard somtimes).
reneeschultz, if they are below market and you come in and fix problems or immediately make things better, raising the rent 30, even $50 may make sense.
The big reason I hate having the utils in my name is it seems like it is much easier to collect the rent than it is the utils from the tenants. They seem to want to pay the rent on time and wait on the util payment until it is convenient for them.
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