If you were like me as a landlord starting out, you are buying older properties. Probably multifamily rentals, if you can afford it. Often older properties are not set up for multiple families, even though they are being used for that purpose. There are single meters in a multifamily property. Even large properties have single water meters. You probably wonder how to handle utilities as a landlord.
Here is how to handle utilities as a landlord for your properties, multifamily or single family.
What Are Utilities in a Rental?
Utilities can be anything. The common ones are electricity and gas. You also have garbage, water and sewer. There are Homeowner Association (HOA) fees, which are often passed along to a tenant. Lawn and snow maintenance are part of the utilities. If you offer laundry equipment, that can be considered a utility.
Combined, these expenses can really add up. I generally never let a tenant take care of the lawn and snow, but it can work out if you have a decent property and solid tenants. Weak tenants will wear you down keeping ahead of neighbor (and City) complaints about the lawn being mowed.
Landlord Cut-over Account
If you are not paying the utilities for your tenants, you need to have all your property utilities set up on a landlord cut-over account that can be. When a tenant moves out, the utilities go in your name. There is no switch-over charge and no interruption. When a tenant moves out in the middle of the night, you still have lights and heat. When your turnover an apartment, you can come it and do your work.
If you do not have a landlord cut-over account setup, it may delay you for a few days while the utility company gets out to turn on the utility.
There is a risk that if a tenant does not pay the utility bill, it gets switched into your name too. That may be the better option than risking a freeze, or a move out when you are not expecting it.
Paying for Utilities that Stay with the Property
This is a no-brainer. Some utilities such as water, get billed to the owner of the property if they are not paid. Some water companies will not bill the tenant separately. Even if the utility company will, most water bills if not paid, become a lien on the property. It will be paid by the landlord if not by the tenant. Or the landlord may lose the property due to the utility lien.
Most water bills are paid quarterly. Tenants not used to paying a water bill will forget this bill. If you are letting the tenants pay the utility, you MUST check the status every billing cycle. You must also be prepared to evict if they have not paid the bill. And your lease should say you have the right to evict if it is not paid.
There are also some municipalities that deliver electric and gas. If these utilities will create a lien on the property if not paid, you need to stay on top of them like white on rice, or pay them yourself.
Would a judge allow an eviction is a utility bill was not paid for 15 days? Would you even notice the bill was not paid? How do you bill a tenant for water they used when they have been gone for over two months?
Why add the extra work as part of your property management? Just pay the water bill, and collect the rent every month.
I hear all the time from landlords about tenants that leave the windows open and turn the heat up to 90 degrees. That can actually happen, but I have never had an issue. However, I did have an issue once where the heat upstairs was too hot for the tenant as my zone control was not working.
In this duplex, I only had one thermostat at that time, and the upstairs tenant wanted it cooler, and there was no way to keep the furnace from running. Adding a zone control damper solved the issue.
You can also get a tamper proof thermostat, that the tenants cannot turn up or down too far. Here is one, but there are many options.
Section 8 Properties
If you have a Section 8 property, you should include the utilities in the monthly rent. Section 8 will pay more for a property that includes utilities. Many Section 8 tenants have such poor credit that they have difficulty transferring the utilities into their own name. By paying for the utilities, it may help you get and keep a tenant, and prevent the utilities from getting shut off. In Minnesota, getting the utilities turned off in the middle of winter can be catastrophic to your property.
There is some risk however, if you evict the tenant for lack of paying rent, you not only lose rent, but the money you spent on utilities too.
Separate Utility Meters
Ideally, you will have separate meters for all utilities. I have a duplex that only has one water meter, one electric meter, one furnace, and one washer and dryer. The laundry is free, so anyone can do as much laundry as they want. This is a common way that duplexes are set up.
I just allocate a monthly amount for each tenant. The lower half pays an extra $225, and the upper unit pays $105. How I determined that is a relatively subjective method. I advertised at different prices and sometimes I lowered the rent price and raised the utility contribution. When I got a well-qualified renter, I went with the last price that was advertised when they came in.
After Market Utility Meters
You can do a makeshift job of splitting electricity yourself with one of these meters. Someone will still have to read the meter and decide what to charge. You can get water and gas meter that do the same thing, without having to get separate meters from the utility company.
Odds are, if your building was not built with separate utilities in mind, there are some circuits that are shared between units. Adding a new meter from the electric company and getting two bills for a duplex is nice, but will not solve all the issues. A shared circuit is one. Any common area utilities, such as lights and heating are another. Can a tenant wash the car? Is there a washer or dryer that is shared and uses utilities?
Using these after-market utility meters can be a real headache and add a lot of extra work. Maybe you can squeeze a few more dollars out of your rental, and maybe the extra meter reading and utility billing will take up more time than it is worth.
Flat Rate vs. Monthly Billing
Some landlords in duplexes and even larger properties separate the utilities every month and send the tenant a bill. Water is a prime utility that often is billed to a complex, and not an individual unit.
Does the utility company finalize the bill at the same time rent is due? What happens in an overlap situation where you get new tenants, how do you split that up? What happens when the tenants move, you will be waiting on a bill and trying to collect from a tenant that has moved out.
If you have a flat number, you get that amount every month, on the first of the month, just like rent.
Single Family Home Utilities
In a single-family home, it is pretty easy to see who should pay the utilities. The person or family that lives there. There are special circumstances that may make you decide otherwise, such as a Section 8 property. If you are renting a room, that makes it more difficult. Why not just charge a flat rate for the room, which includes utilities?
You need to understand what happens when the utilities are not paid, and what your plan is when they are not paid. And you need to validate that they are being paid. If the utility is disconnected, you can suffer catastrophic damage or have a lien created on your property.
Separate Zone Controls for a Duplex or Triplex
My duplex has separate heating ducts for the upstairs and downstairs. Ducting is fairly easy to run and change, if needed. Adding a separate furnace whether you have separate ducting or not is much more difficult.
If possible, put in a zone damper control and separate thermostats for each unit in a duplex or triplex. It will save a lot of issues in the long run.
Advertising Your Rental that Includes Utilities
If you are worried that your price may be noncompetitive, price the rental at one price, and add a utility ‘fee’ to the monthly rent. For example, advertise at $1,000 a month, and have a $250 monthly utility fee, for a total of $1,250 a month. That way, you are not over-priced for a similar property down the block.
If you advertised at $1,250, any renter that has a price cap of $1,000 will miss your rental. Advertising at the higher rate, you will also seem to prospects to be $250 too high, and will not get any inquiries except fromlow-quality renters that cannot go anywhere else.
Families vs. Individuals
There is no legal way to charge a family more for utilities than a single person. You may get away with it, but it would probably violate the Familial Status part of the Fair Housing law. I recommend you stay away from that. Does a single person generally use less water than a family with two adults and six kids? Yes, they do, but you cannot charge more.
Just pick a number for utilities that makes you money and stay with it. Allocate the utilities by square footage if you want. Have solid screening criteria, and your tenants will respect the property and the utilities.