As a property owner you have many responsibilities and costs to take care of. Your income can quickly become depleted from the various expenses as a landlord. One of the biggest expenses of a rental property can be the utilities. Investment properties are supposed to be just that – an investment. But you want to get a good return for that investment. There are a couple of ways you can charge your tenants for the utilities. Let’s take a look at a few of the options.
Included In The Rent
You can include the utilities in the cost of the rent as a flat fee. This way you keep the utilities in your name which gives you more control of the utilities. You will want to make sure to call the utility companies and find out the past years’ averages and then go from there.
One of the downsides of this options is that this could cause your property to appear more expensive to renters. When they are looking and comparing your property to other possible rental properties your property may end up priced out of their search criteria. Even though your property may actually be lower; people don’t always think to look and see if the utilities are included or not.
Most renters search based on their income and a base amount that they are willing to pay. Your property may get priced out of their range and they may never even see it because of that.
Monthly Utility Fee
This method will keep the utilities in your name as well. It will be additional billing for you, however, as well as extra bookkeeping you will need to do. You could do a flat fee or have it changed depending on what you write into your lease agreement.
Tenants Responsible For Utilities
In this senario, the tenants are required to put the utilities in their name. They are then responsible for making the payments directly and you do not have to do any billing or bookkeeping.
Many times items that fluctuate, such as heating and water, are put in the tenants name. Sewage and garbage can be kept in the owners name and included in the rent.
Know Your Property Type
Is your property an older home or a new construction? How is your property metered? Do you have one meter for a multi unit or do you have a sub meter? Make sure you know your meter situation when you decide how to charge your tenants.
Know Your Risk Tolerance Level
There are several risk and liability issues variables that you need to think of when deciding how and what to charge for your utilities.
If you keep the utilities in your name and charge your utilities as part of the rent you charge then you are liable for the payment of the utilities. If your tenant is late paying or skips out on the bill you will be responsible. You also need to determine the amount you are going to charge.
For example, if you determine that you will charge $75 for your utilities but your renter loves long hot showers every night and the house heated to 80 degrees year round, you may be in trouble. Suddenly your utilities bill is $250 but you are only getting $75 from your renter per the signed lease.
There is no motivation for a renter to keep the utility bills low in a situation such as this. They may want to make sure they are getting their $75 worth of utilities and intentionally set the heat high. This is one risk you take when you use this method. Make sure to think through various scenarios for each different way and determine which one has the risk ratio that you are comfortable with. A good property management company can help you determine this.
Know Your Markets Norm
Every market is different when it comes to rental properties and how they charge for their utilities. The norm in Finley may not be what the norm is in Pasco. Do some research. Find out what similar properties are charging and how they are charging for the utilities in your area and take that into consideration.
Qualify Your Tenants
Having the tenant responsible for the utilities is one way to help qualify your tenants. It will help them have a sense of ownership as well as insulate you against risk. If you include utilities as a flat fee then there is no incentive for them to be careful with the costs. People tend to pay more attention to things when they are responsible for the costs associated with them. Renters are also more likely to report any issues they are having such as a leaky toilet or broken window. If you find out that the tenant is not able to put the service in their name, this may be a red flag for you as to if you want to rent to them.
Get It In Writing
Which ever way you decide to handle your utility billing, you want to get it written into your lease and signed by the tenant. Also make sure to put in there when you are going to charge a late fee and what happens if the utilities aren’t paid. You do not want any confusion when it comes to who is responsible for what and what the response will be. Also, make sure to talk with a professional to make sure that your fees are in accordance with local and state laws.
Which way do you think is the best way to take care of the utilities? If you are uncertain, give us a call. One of our Property Managers would be happy to speak with you about our services and what we would recommend for your particular property.
1920 N. Pittsburgh St., Suite A
Kennewick, WA 99336
NOTE: This article is not a substitute for the advice or use of an attorney or property manager; you should not rely on this article for any purpose without consultation with a licensed attorney or property manager. It is strictly for informational consideration only.
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