Top Reasons Why Separately Metered Utilities for Tenants is Advantageous Top Reasons Why Separately Metered Utilities for Tenants is Advantageous | Winterspring Capital

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

When purchasing a new investment property, we first look at what major maintenance items and capital expenditures are necessary to bring the building(s) back to working order, if necessary. 

If you have the necessary tools in your arsenal as a real estate investor, you can turn buildings around and force appreciated value through restoring buildings in disrepair. 

This strategy is explained further in a separate article.  One other area that is somewhat related, but may be treated separately, is whether the property has separately metered utilities.  In many states, water and sewer charges are the responsibility of the landlord, and while it may be possible to recoup those expenses through certain methods, that is beyond the scope of this article.

What we are mainly focusing on in this article is gas and electric utility bills:

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

All throughout the United States, the bulk of the housing stock was built decades ago.  Properties built within the past few decades will likely have separately metered utilities, but the further back you go, the less likely this becomes. 

Ultimately, this is an expensive and complicated project to tackle when you are looking to purchase a new building.  As stated previously, taking a building without separately metered utilities and converting to individual meters is one way you can force value in the property

Working together with electricians, plumbers, and your local utility companies, you can upgrade these systems.  Just make sure you are working with licensed professionals that are familiar with all local regulations in your area.  If you don’t have the confidence or skillset at your current stage, that’s fine.  You can still look for buildings that already have separate meters.

Rental Rates

"You’ll be facing steep competition from listings that appear to have cheaper rent on paper because the utility payments are the responsibility of the tenant. "

If the utility payments are all on the landlord, then you will have no choice but to raise your rent to recover those expenses. 

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

The problem with that is, when you or your agent go to list your units on Zillow, MLS, and other platforms, you’ll be facing steep competition from listings that appear to have cheaper rent on paper because the utility payments are the responsibility of the tenant

Your listing might be a better deal, all things considered, but the first thing people will see is the flat monthly rental number.  It would take more digging to realize the caveat that utilities are included in your listing. 

Don’t get me wrong – tenants will find their way to your listings if you are investing in the right areas and your rents are sensible.  It’s just one thing detracting from your property’s competitiveness – giving you a smaller tenant pool to choose from. 

There may also be the psychological impression that an older building without separately metered utilities is of a lower quality, depending on how picky and competitive your rental market is.  People may also filter their listings by the rental amount and your units are removed from their search results from the start.

"Utilities Included"

When this tenant is responsible for the bill, this variability is no longer your concern and you can have uniform rents, eliminating a potential unexpected risk factor.

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

Another thing to consider is that when you purchase a property where the landlord is responsible for all utility payments, it is standard practice that the rental rate is the typical rental rate for similar units in the area PLUS the estimated average monthly utility usage for a typical tenant. 

That sounds logical on paper, but the problem you will run in to is that some tenants are more expensive than others when it comes to utility use. 

Some people might be responsible about keeping windows closed when the heat is on, turning off lights when not in use, and other such methods, but even a renter who pays their rent on time every month may have different lifestyle habits that lead their utility bills to exceed your estimates. 

When this tenant is responsible for the bill, this variability is no longer your concern and you can have uniform rents, eliminating a potential unexpected risk factor.

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

Is it a deal breaker?

If you find a property that doesn’t have separately metered utilities, but your strategy still points you towards considering investing, is this a deal breaker? 

We would say no; a good deal is a good deal, with one major caveat.  Ideally, you want separate meters, but if a property is checking the boxes for you, whether it be in a high-growth area, has a healthy pre-existing cash flow stream, or whatever other reason, you shouldn’t turn your nose up at a good opportunity if this is your only objection.

When comparing two properties that seem very similar on paper, but one has separately metered utilities and the other doesn’t, you should lean towards the separately metered property.

There is value in having separate meters that should go into your due diligence underwriting.  Ideally, the price of a property that does not have separately metered utilities should ideally be discounted by the installation costs for a professional to convert the property to separate meters. 

The best deals would have an additional discount included for your time to organize this work.  Of course, this might be impossible to pull off in some circumstances, as the cost of bringing a building to working order with separate utilities can vary, depending on the pre-existing mechanical engineering in your property.  That said, it’s worth also taking into account whether or not metering separately is feasible as a future capital expenditure even if it’s not something you’re planning to do in the immediate future.  

What We Do

If our team identified a building where, for some strategical reason, we planned to move towards separate meters of the course of a 3 year transitioning strategy, this would be an acceptable situation where we would feel comfortable covering utility payments as the landlord for the first few years.  The things we would shy away from were buildings where some mechanical or structural component prohibited separate metering.  Older buildings may be exorbitantly expensive to separately meter.  This situation would probably be the only one that would prevent us from investing in a cash-flowing building.  If you need gut renovations to modernize your buildings’ operational systems, it’s likely the building will have unforeseen costs down the line and isn’t worthy of your time anyway. 

When purchasing a new investment property, we first look at what major maintenance items and capital expenditures are necessary to bring the building(s) back to working order, if necessary. 

If you have the necessary tools in your arsenal as a real estate investor, you can turn buildings around and force appreciated value through restoring buildings in disrepair. 

This strategy is explained further in a separate article.  One other area that is somewhat related, but may be treated separately, is whether the property has separately metered utilities.  In many states, water and sewer charges are the responsibility of the landlord, and while it may be possible to recoup those expenses through certain methods, that is beyond the scope of this article.

What we are mainly focusing on in this article is gas and electric utility bills

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

All throughout the United States, the bulk of the housing stock was built decades ago.  Properties built within the past few decades will likely have separately metered utilities, but the further back you go, the less likely this becomes. 

Ultimately, this is an expensive and complicated project to tackle when you are looking to purchase a new building.  As stated previously, taking a building without separately metered utilities and converting to individual meters is one way you can force value in the property

Working together with electricians, plumbers, and your local utility companies, you can upgrade these systems.  Just make sure you are working with licensed professionals that are familiar with all local regulations in your area.  If you don’t have the confidence or skillset at your current stage, that’s fine.  You can still look for buildings that already have separate meters.

Rental Rates

"You’ll be facing steep competition from listings that appear to have cheaper rent on paper because the utility payments are the responsibility of the tenant. "

If the utility payments are all on the landlord, then you will have no choice but to raise your rent to recover those expenses. 

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

The problem with that is, when you or your agent go to list your units on Zillow, MLS, and other platforms, you’ll be facing steep competition from listings that appear to have cheaper rent on paper because the utility payments are the responsibility of the tenant

Your listing might be a better deal, all things considered, but the first thing people will see is the flat monthly rental number.  It would take more digging to realize the caveat that utilities are included in your listing. 

Don’t get me wrong – tenants will find their way to your listings if you are investing in the right areas and your rents are sensible.  It’s just one thing detracting from your property’s competitiveness – giving you a smaller tenant pool to choose from. 

There may also be the psychological impression that an older building without separately metered utilities is of a lower quality, depending on how picky and competitive your rental market is.  People may also filter their listings by the rental amount and your units are removed from their search results from the start.

"Utilities Included"

When this tenant is responsible for the bill, this variability is no longer your concern and you can have uniform rents, eliminating a potential unexpected risk factor.

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

Another thing to consider is that when you purchase a property where the landlord is responsible for all utility payments, it is standard practice that the rental rate is the typical rental rate for similar units in the area PLUS the estimated average monthly utility usage for a typical tenant. 

That sounds logical on paper, but the problem you will run in to is that some tenants are more expensive than others when it comes to utility use. 

Some people might be responsible about keeping windows closed when the heat is on, turning off lights when not in use, and other such methods, but even a renter who pays their rent on time every month may have different lifestyle habits that lead their utility bills to exceed your estimates. 

When this tenant is responsible for the bill, this variability is no longer your concern and you can have uniform rents, eliminating a potential unexpected risk factor.

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous

Is it a deal breaker?

If you find a property that doesn’t have separately metered utilities, but your strategy still points you towards considering investing, is this a deal breaker? 

We would say no; a good deal is a good deal, with one major caveat.  Ideally, you want separate meters, but if a property is checking the boxes for you, whether it be in a high-growth area, has a healthy pre-existing cash flow stream, or whatever other reason, you shouldn’t turn your nose up at a good opportunity if this is your only objection.

When comparing two properties that seem very similar on paper, but one has separately metered utilities and the other doesn’t, you should lean towards the separately metered property.

There is value in having separate meters that should go into your due diligence underwriting.  Ideally, the price of a property that does not have separately metered utilities should ideally be discounted by the installation costs for a professional to convert the property to separate meters. 

The best deals would have an additional discount included for your time to organize this work.  Of course, this might be impossible to pull off in some circumstances, as the cost of bringing a building to working order with separate utilities can vary, depending on the pre-existing mechanical engineering in your property.  That said, it’s worth also taking into account whether or not metering separately is feasible as a future capital expenditure even if it’s not something you’re planning to do in the immediate future.  

What We Do

If our team identified a building where, for some strategical reason, we planned to move towards separate meters of the course of a 3 year transitioning strategy, this would be an acceptable situation where we would feel comfortable covering utility payments as the landlord for the first few years.  The things we would shy away from were buildings where some mechanical or structural component prohibited separate metering.  Older buildings may be exorbitantly expensive to separately meter.  This situation would probably be the only one that would prevent us from investing in a cash-flowing building.  If you need gut renovations to modernize your buildings’ operational systems, it’s likely the building will have unforeseen costs down the line and isn’t worthy of your time anyway. 

Invest with Winterspring

Invest with Winterspring

Top Reasons Why Separately Metered Utilities for Tenants is Advantageous
Top Reasons Why Separately Metered Utilities for Tenants is Advantageous
Top Reasons Why Separately Metered Utilities for Tenants is Advantageous
Top Reasons Why Separately Metered Utilities for Tenants is Advantageous