Should Landlords Always Separate Apartment Utilities
Q: We’re buying a multi-family property. The utilities are currently not separated, do you think we should separate the utilities? Marjorie, Kenilworth, NJ
A: Good question, Marjorie. The answer to your question is that it depends. First and foremost, you need to determine how much it will cost to separate the utilities in your multi-family property and then whether you have the money to pay for it now. If the answer is no, then I wouldn’t separate the utilities–at least not now. I also would be reluctant to borrow money to separate the utilities if you don’t have the money now because this will add to the debt you have to pay back including the interest you have to pay on that debt. If you do have the money to separate the utilities, I still suggest you do some analysis before you spend the money to do the work. Estimate how much money you’d save monthly, quarterly and annually from separating the utilities then determine how long it would take you to recoup the investment based on the cost. If the period is relatively short, then you probably should separate the utilities. If the period is long (i.e. many years) then you should consider how long you plan to keep the property and then make a decision. Lastly, consider rental demand in the local real estate market where your multifamily property is located–specifically, you should look at the situation from a tenant’s perspective: do similar apartments to the units you’ll be renting out offer utilities included with rent? As a landlord, you can’t control demand and offering a property with utilities included may result in you being able to get a tenant faster and maybe charge a higher rent which may offset the additional cost of paying for utilities and may also save you the additional capital improvement expense of separating the utilities. Almost everything in life and in investing is situational, so I suggest that rather than assuming you should pay to separate the utilities, you do the analysis on your specific multi-family property and then make an informed decision.
Thanks for your question, Marjorie.
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