I am dealing with a property that has 32 efficiency units. The owner wants $680,000 for the property. I am sure I can get him down and I am guessing he will be flexible. The owner is in his 80’s and his wife and he run the property. The property has a yearly income around $135,000 and has $75,000 worth of expenses. The majority of the expenses are from the utilities which he pays all of those.
What are the advantages of paying all the utilities and the disadvantages as well? I would need to get the expenses down in order to make this a deal. If I do find out a way to pass on expenses to the tenants, I am guessing that I would have to lower rents because the rent is already at the top of the market.
What I am assuming is that if you pay the utilities that you raise the monthly rent however much those utilities will charge you. Is this a good/bad strategy? If anyone has any advice it would be greatly appreciated!
Casey
Advantages of an owner paying all utilities:
Disadvantages of an owner paying all utilities:
Tenant abuse eating into your profits
Never knowing your monthly expenses until getting the utility bill
Splittling utilities for a 32 unit building would be SUPER expensive. I’ve seen some people charge a utility fee (either a flat fee or a pro-rated fee as a percentage based off the sqft. of their unit vs. the total sqft. of the building).
Is the rent at the top of the market as compared to other similar properties that do not include all utilities? If so, you could advertise a monthly rent that is comparable to other similar properties that don’t include utilites and then state you have a $XX/month utility fee, but that includes everything. The renter would always know what they’re paying each month regardless of usage (good for them), but your costs will still vary.
A building this size should have separate utilities anyway. Looks like you should find something else to work on.