Hello Again!
I made a reference in one of my latest posts, that we were testing having the owner pay all utilities vs the tenant paying all utilities, and I promised I would share our test property. I do have permission from the owner to share these results, so we are all good.
First off I would like to explain my reasoning why this is potentially a great deal! First and foremost, it has to be very carefully thought out, as it can go very ugly, very quickly!
PROS:
Tenant Placement is off the charts faster than not paying!
No risk of freeze ups during those cold months, if the tenant does not pay for the heat.
Tenant more than likely having the money to actually pay your rent! YAY!!CONS:
The expenses can get way out of control very quickly if not properly managed!
What we did was convert his 4 plex into 2 systems. All 4 units were rented with all utilities paid, we converted 2 of the units to handle the upgrades of this test. The conversion of the 2 units cost a total of $737.69, yes that's exact!
The conversion to control utility costs existed of these items, exactly!
1. We installed ultrasonic sensors in the following rooms: Living Rooms, Dining Rooms and Kitchens! These were the most expensive sensors, but they work very very well!
2. In the bedroom's, we simply installed the compact fluorescent bulbs, everyone is familiar with. We didnt want to put any of these on sensors, as alot of people like to read in their bedrooms, and we didnt want to inconvenience them with lights turning off and on.
3. In the basement, we simply installed motion activated lights, that were wired to a timer, that was pre set for 30 minutes. This building has its laundry facilities in the basement. Again, same bulbs as above.
The results at the 1st billing of electricity use between the 2 systems if you will. A 24.3% reduction in the test units on their electric bill vs the other system, that was not converted. We have already converted the 2 other units, by the way! I was a little disappointed in this number, as I was wanting a 30% reduction in bills, but the owner is beyond satisfied and that's what is important. We will be tinkering with the system to try and reach that 30%, but I honestly don't see it getting there.
Just a side note, if we maintain a 20-25% reduction, this conversion will pay for itself in less than 6 months!
Now as far as heating expenses, as this building is on natural gas heat. This one is the killer in KC, our gas bills here can get down right criminal, in my opinion.
We installed programmable thermostats and preset them to 73 degrees in the winter, and 73 degrees in the summer. But probably more importantly, we encased the thermostats with a steel lockable box, and anchored it to the wall with 3" wood screws. No tenant will rip that off the wall without causing some problems.
Now to be 100% honest here, the data back on gas usage is no where near ready to complete. We have not officially moved into winter just yet, we have had some cold nights, but nothing really consistent to warrant a lot of heat usage. This month should fix that, maybe! But there is no question the gas bills will drop significantly, as we are now in control of the thermostat, so the tenants can no longer crank it up to 90 in the winter. Yes, they do this!
The water usage is what it is to be honest. The water bills in KC, are minimal at best, even on a 4 plex, when you compare it to lights and gas. The other factor here is the laundry is coin op, so the owner is collecting laundry income to help offset the water bill. We did install low flow shower heads and aerators on the faucets, but any savings by them will be minimal.
It's to early to tell what this will do to his bottom line, as far as NET cash flow, simply because he was 50% vacant for 2 months prior to us taking over, so we don't have any past data to go on, but we are expecting a positive gain on his Cash Flow on a monthly basis. How much is yet to be determined, but I will update you on that.
Keep in mind, this conversion worked so well, because I took the time to sit down with my electrician and devised a plan. If this conversion was done wrong, or cheaply, the results would not have been this good. It is very important you plan everything out, if you would ever consider paying utilities for the tenants, as one false move, can absolutely go from black to red, in a hurry!
One more thing that we considered in making this switch to energy control. Our light company (which I'm sure some of you know by the name of KCPL) actually drops their service rate during the winter months, so not only are we using less electricity, but we are going to be paying alot less for the electricity we will be using. All of these factors should be considered as they will improve your bottom line.
I hope this helps you realize that "anything" is possible, it just takes intelligent planning, and not basing everything on opinion's. As we all are aware, there is nothing "factual" about an opinion, if there was, it would be called a FACT!
Have a great day/evening!
John
The Update is In!!!!
As promised I will update all of you on the test property of paying all utilities…
I will say that this even surprised me, and it is now official! We will be paying all utilities for those owners who have authorized us to make the change. To date, we are in the process of converting 22 of our properties to all utilities paid!
Additionally, my partners and I will be converting one of our apartment buildings to all utilities paid. This building is 10 units, and we estimate picking up an additional $600 per month NET in rent! The conversions will cost around $3000, so in 5 months it will be paid for! We will take about a $1000 hit on the 1st month, as the notices to change rent carries a 30 day notice with it. We polled our tenants and they overwhelmingly approved a $200 per month rent increase. In fact over the next 18 months, we will be converting all of our properties to all utilities paid.
Now the results….This test property delivered in a really big way, much better than I was projecting with the owner.
The December gas bills came in, and it has been a pretty cold month, and I know the furnaces were doing some work. With the meter readings being nearly triple of what they were in November (in all fairness, November was a pretty mild month for us), the gas bill for December was just under $700. I took the same meter usage for December and applied it to November’s bill (before the full conversion), and the gas bill for November would of been just under $875, or not quite 20% savings.
Now the good stuff! We raised the rents in this building to $750 per month, all utilities paid. So now we are grossing $3000 per month in rents, with the light bill at approx. $400 per month, gas bill $700 per month and the water bill at $150 per month, that’s a total of $1250 in utilities. He collects an additional $100-125 per month in laundry income, to bring his gross to $3125, less $270 per month in management fees, and $135 per month insurance, for a NET income of $1470! I did not calculate maintenance, only because for the 2 months I have been managing it, we have had no maintenance calls what so ever! We will have some maintenance as soon as the snow starts falling!
His net for November, $1237.88, that’s the check I cut for him on the 5th of November!What does this mean to him, in the very cold months when the gas bills will be high, he can expect an additional $150-200 per month in income, but when we turn to spring and summer, and the furnaces get shut off, he can expect an additional $700-800 per month in income!
This just shows you that if you put together a plan and carefully think it through, you can succeed! This proves the power of relying on facts to conduct business, and not opinion’s!
I am in the process of completely changing “The Renovation” to include setting up the properties to be all utilities paid! I will never go as far as saying this is how we will do it from now on, but we strongly encourage every owner to look at this option. If it is done correctly you will actually make more money, if it is done incorrectly, you will lose 100s of dollars a month!
Let me add this, I am still a huge fan of all electric everything, as the savings would be even greater. In this scenario the owner does not want to convert to all electric at this time, as the costs are a bit high for a 4 plex.
To recap: We netted the owner nearly $200 per month in additional income, but probably more important, we have 100% eliminated the risk of utilities being shut off for non payment, and causing 1000s in repairs! That’s managing! The other factor to keep in mind, tenants will be beating down your door if you tell them it’s all utilities paid! I don’t think there is a PM out there that would disagree with me on that. The number of calls I receive daily from tenants wanting to know if that property is all utilities paid, is staggering.
One other thing to keep in mind, your NET NET will actually increase as well, because you are now paying utilities, which is a legitimate expense, therefore will reduce your “earned income” therefore your taxes go down! It’s what is defined as WIN WIN!!
I hope everyone has a awesome New Year!!
John
Hi John.
That’s a very clever strategy.
It converts personal living expenses the tenant can’t claim on tax,
into expenses the landlord can claim.Can someone familiar with Australian Tax Laws tell us if
there are any FBT implications in supplying “free” utilities to a tenant ?What else can the landlord supply for the same effect – groceries, full room n board, gardening services, ironing or housemaid services, ???
It’s good of you to post this info for everyone on the forum, we all benefit.
Hopefully our Australian tax man doesn’t move to plug that hole.Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
thecrest wrote:Hi John.
That’s a very clever strategy.
It converts personal living expenses the tenant can’t claim on tax,
into expenses the landlord can claim.Can someone familiar with Australian Tax Laws tell us if
there are any FBT implications in supplying “free” utilities to a tenant ?What else can the landlord supply for the same effect – groceries, full room n board, gardening services, ironing or housemaid services, ???
It’s good of you to post this info for everyone on the forum, we all benefit.
Hopefully our Australian tax man doesn’t move to plug that hole.Cheers
thecrestThanks for the compliment!
I hope it all works out for you in Australia, hopefully your tax authority will see it the same way!
In the US, there are a few additional things the owner can supply the tenant and take an expense for: furniture is one, I don’t like that one, as typically you will lose with that one, as they will damage the furniture at the very least, and possibly take it with them on move out day. And besides, who really wants to sleep on a bed that someone you do not know also slept on…YUCK!
There is a ton of creative ways to not only get tenants, but take write offs for them, not items that will result in you making any more money, but goes along way if you have a property that you just can’t get rented for whatever reason. For instance in the states, it’s a nightmare to get renters in December, we are competing directly with Christmas, and they will hold out as long as possible in spending money on anything other than rent. It’s definitely not a coincidence, that tenants try to extend that due date for rent in December.
Some tactics I have used in the past with problem houses to get them rented:
Free 32″ LCD TV with 16 Month Lease….Costs the owner around $200 for the TV, picks up an additional 5 months rent!
Season Tickets to the Chiefs/Royals…Costs around $400, gets the owner an additional 3-4 months rent.The main reason I select 16 month agreements, is I can avoid having leases expire in the winter, making it a little easier to rent out for the next tenant.
Have a great New Year!!
GreaterKCHomes wrote:The Update is In!!!! As promised I will update all of you on the test property of paying all utilities… I will say that this even surprised me, and it is now official! We will be paying all utilities for those owners who have authorized us to make the change. To date, we are in the process of converting 22 of our properties to all utilities paid! Additionally, my partners and I will be converting one of our apartment buildings to all utilities paid. This building is 10 units, and we estimate picking up an additional $600 per month NET in rent! The conversions will cost around $3000, so in 5 months it will be paid for! We will take about a $1000 hit on the 1st month, as the notices to change rent carries a 30 day notice with it. We polled our tenants and they overwhelmingly approved a $200 per month rent increase. In fact over the next 18 months, we will be converting all of our properties to all utilities paid. Now the results….This test property delivered in a really big way, much better than I was projecting with the owner. The December gas bills came in, and it has been a pretty cold month, and I know the furnaces were doing some work. With the meter readings being nearly triple of what they were in November (in all fairness, November was a pretty mild month for us), the gas bill for December was just under $700. I took the same meter usage for December and applied it to November's bill (before the full conversion), and the gas bill for November would of been just under $875, or not quite 20% savings. Now the good stuff! We raised the rents in this building to $750 per month, all utilities paid. So now we are grossing $3000 per month in rents, with the light bill at approx. $400 per month, gas bill $700 per month and the water bill at $150 per month, that's a total of $1250 in utilities. He collects an additional $100-125 per month in laundry income, to bring his gross to $3125, less $270 per month in management fees, and $135 per month insurance, for a NET income of $1470! I did not calculate maintenance, only because for the 2 months I have been managing it, we have had no maintenance calls what so ever! We will have some maintenance as soon as the snow starts falling! His net for November, $1237.88, that's the check I cut for him on the 5th of November! What does this mean to him, in the very cold months when the gas bills will be high, he can expect an additional $150-200 per month in income, but when we turn to spring and summer, and the furnaces get shut off, he can expect an additional $700-800 per month in income! This just shows you that if you put together a plan and carefully think it through, you can succeed! This proves the power of relying on facts to conduct business, and not opinion's! I am in the process of completely changing "The Renovation" to include setting up the properties to be all utilities paid! I will never go as far as saying this is how we will do it from now on, but we strongly encourage every owner to look at this option. If it is done correctly you will actually make more money, if it is done incorrectly, you will lose 100s of dollars a month! Let me add this, I am still a huge fan of all electric everything, as the savings would be even greater. In this scenario the owner does not want to convert to all electric at this time, as the costs are a bit high for a 4 plex. To recap: We netted the owner nearly $200 per month in additional income, but probably more important, we have 100% eliminated the risk of utilities being shut off for non payment, and causing 1000s in repairs! That's managing! The other factor to keep in mind, tenants will be beating down your door if you tell them it's all utilities paid! I don't think there is a PM out there that would disagree with me on that. The number of calls I receive daily from tenants wanting to know if that property is all utilities paid, is staggering. One other thing to keep in mind, your NET NET will actually increase as well, because you are now paying utilities, which is a legitimate expense, therefore will reduce your "earned income" therefore your taxes go down! It's what is defined as WIN WIN!! I hope everyone has a awesome New Year!! JohnJohn interesting want to read thsi when I have a few more minutes then respond. Heading to the gym…to early to really think yet.. But interesting ..
Alex
Hi Alex
Nice big quote. Did u mean to copy all that ?
Agree it’s very interesting.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
I assume it's no longer cold now. However after several more months have there still been proven savings based on same time last year?
A great management and marketing strategy John. I’m impressed.
thecrest wrote:Hi John.
That’s a very clever strategy.
It converts personal living expenses the tenant can’t claim on tax,
into expenses the landlord can claim.Can someone familiar with Australian Tax Laws tell us if
there are any FBT implications in supplying “free” utilities to a tenant ?What else can the landlord supply for the same effect – groceries, full room n board, gardening services, ironing or housemaid services, ???
It’s good of you to post this info for everyone on the forum, we all benefit.
Hopefully our Australian tax man doesn’t move to plug that hole.Cheers
thecrestHuh? Nothing special tax wise about this.
The expense is just offset against the increased rent [income].
Hi Bumskins.
Glad you mentioned that so I had to re-read the first few posts from John.
The rents have been increased to more than cover the costs of utilities, so the landlord makes a profit there,
and because the utilities bills tax deductible for the landlord, he makes a profit there too.
Nice thinking, I like that.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
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