Hello everyone! I've been reading the site for a while but this is my first post. We put in our first offer on a small duplex with two bedrooms in each unit. I am crunching numbers like crazy to see if it makes sense or not. It all seems to depend on how much I can get for rent, and whether or not the tenants pay for utilities. It is near a university so I am hoping for grad/law/medical students or mature undergrads. But, the fall semester is almost upon us (September 8) which leaves me very little time to find good tenants! The inside is completely renovated with new stainless steel appliances in one of the units, and used but good appliances in the other. My questions:
1. Do you include utilities or not? Pros/cons? I would prefer for the tenants to pay for utilities as I believe tenants can sometimes be wasteful if the landlord is paying. I have no idea what they will cost since the house has been completely renovated. And the higher rent I can get if I include utilities (about $100 per month per unit) does not cover utilities.
2. What about phone/cable/internet?
3. Furnished or unfurnished? I think for students, having a partly furnished placed might be attractive if they are moving away from home for the first time, but I bet the furniture would take a beating. On the other hand, I think I could get a higher rent by adding a few key pieces to make the place look even nicer.
Look at your competition, call some rental ads around the property.
Thanks. The local ads are all over the place in terms of price, furnishings, and utilities. One ad specifically targets grads/law/medical and charges way more per rental than everyone else. But I would rather have the place filled than ask for too much and have it sit empty.
It really depends on what your market will support and what your competition is doing. If they can get a similar place for the same rent with utilities included they will take it. If they can’t, they will rent yours. I have a duplex near a school and did start charging my tenants a fixed rate for the water because it is not separately metered. (Anything that is separately metered by the way should be the tenants’ responsibility, i.e. they need to call the gas/electric/internet/cable/etc. company and set up their own service). It has worked out great so far. They expect to pay for their own utilities so they do not mind paying an additional charge for the water. Now, I have tried that in a different market and am getting significant push back from the tenants. Like I said, it is market dependent.
Phone/cable/internet I would almost certainly pass on to them. I can’t foresee a reason why that would not be possible unless of course the standard in your area is to have it included.
Furnished or unfurnished? Again, market dependent but I would seriously lean toward unfurnished. The fewer things you provide that they can break or “acquire”, the better. I have seen people who maintain a storage unit of items to rent to them for extra, particularly washers and dryers, but that is something I would look into down the road to increase your income if there is a demand for it.
If you are short on time and have been crunching the numbers, don’t worry about maximizing your rent. Pick a number that is competitive, fair and ensures you will cashflow and get it rented. Then you can take the next year to figure out the best way to optimize it for you and your tenants. In this scenario I would have the tenants get any and all utilities in their name that is possible. Consider carrying the utilities that are not easy to pass on if the numbers work. And hold off on furnishing the apartment until you get a better feel for the viability of that tactic. Usually the only properties that are furnished are vacation or executive rentals, not long term (1 yr+) rentals.
Thanks, Ed. Very helpful! I think the reason many student rentals are partly furnished is that previous students leave stuff there. But the ones I mentioned that charge higher rent seem to have a few key pieces, especially sofas and desks.
Also, thank you for talking some sense into me about the rush! I kept thinking my numbers are forever, but I realize I can make some changes for the next set of tenants.
I would definitely go unfurnished, the vast majority of non-vacation rentals come this way. Check your competition as far as utilities and cable go. Generally, if you can have the tenants pay for utilities, that's better. But you should comp out the rents the same way you comp out the price.
Ellie, I thought about that as well regarding the big furniture. Especially for the fresh white paint leading up the narrow staircase to the upper unit! Posting two ads is a great idea. I don't know why I didn't think of that.
Andrew, comps are all over the place, so some landlords must be able to get the tenants to pay utilities.
There are many ways to do utilities.
--If they are already split, then it makes sense to have them put the utilities in their name. Tenants are more careful with their usage if they are paying for it!
--If they are already split, you CAN include it in the rent and charge more. Call the utility company and get the average bill for the last year and use that or a little more. Lots of people like to know that their bill is constant and they don't have to worry about huge heating costs in the winter.
--It they are already split, you can cover the utilities but charge them if it goes over a certain amount in a given month.
--If they aren't divided you can pay for the utilities and just charge more to include it, or you can charge the tenants a percentage based on square footage or some other way of dividing it up. I have a triplex where we pay all utilities, I don't charge a percentage back to the tenants since I don't want squabbles over who is cranking up the heat, leaving lights on, or taking the longest showers and how one tenant doesn't think their share is fair... You can also look into what it will take to divide them later- we plan to add electric heat and hot water to this triplex for 2 of the units and then 2 more electric meters so they can all pay their own- the other apartment will still have gas for heat and hot water so they can pay the gas bill and their own electric. You could also use sub meters and divide it up yourself and charge the tenants their actual portion.
Where I am at, almost no triplexes and quads have split water, but some duplexes do. There is a minimum monthly charge for the water so it often doesn't make sense for a 1-2 bedroom apartment to be billed separately.
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