Tenant / Owner Expenses Split?

[Danny Jimenez]

Hello all! For anyone in the Cleveland Ohio area, what typically is normal in that area in terms of who pays the water/sewer, electricity, gas, & garbage?

Looking at small multifamily deals in the area and was curious as to who pays what so that i can more accurately run the numbers on the deals.

Thanks in advanced! 

[Nathan Gesner]

You want the tenant setting up their own utility accounts, period. That's normal and ideal. The only time that doesn't happen is when you have a shared meter and can't split it out.

HOW TO SHARE UTILITIES 101

You have a property with two or more units and the utility meters are shared. There are a few options.

1. Pay to separately meter the utility. This can be very expensive and is usually the worst choice to make because you can't justify the cost.

2. Charge the tenants a higher rent rate and include utilities with their rent. This is the simplest method, but it also means your tenants are more likely to abuse the utilities by leaving windows open with the heat or A/C running, leaving lights on, ignoring the toilet that constantly flushes on its own, etc.

3. Pay the bill yourself, then reimburse yourself by charging the tenants based on a formula. This takes a little more work, but it's the most fair and reduces the likelihood of tenants that squander utilities.

If you choose #2 or #3, there are considerations:

Start with an average. Use varies throughout the year. Heating costs go up in winter, as does electric due to the reduced natural light and people being indoors more. Electric can also spike in the summer with A/C. Contact the utility provider and get an historical average based on the last year of use. It won't be 100% accurate, but it will be close enough. I recommend you do this each year to adjust for utility increases and other variables. If your average heating bill is $150, you may not collect enough in the winter months when the bill reaches $225 but you'll collect extra in the summer when it drops to $65. If you base your tenant charges on the historical average, you should come very close to collecting the entire amount over a one-year period.

Charge a higher rate. If the water bill is $100 a month, increase the price by 20% (or whatever you decide is fair) to compensate you for the time required to split and bill and to cover additional use when tenants squander the utility. If the bill is $100 a month split between four units, increase it to $120 and charge each tenant $30.

How to calculate charges. Don't make it harder than it has to be. If you have four 2bed/1bath units with the same appliances, split it four ways and call it a day. You can make minor adjustments based on the type of appliances (dishwasher, clothes washer and dryer, air conditioning, etc.) and the size of the rental. If Apartment A is a 2bed/1bath with washer/dryer and Apartment B is a 1bed/1bath with no washer/dryer, Apartment A should pay a higher rate. Another option is to split the cost based on the number of occupants in each unit but this also means you'll need to adjust the charges as tenants move in/out, so it requires more work and I wouldn't recommend it. I recommend a simple spreadsheet to check your math and it will make it simple to adjust each year.

End the complaints. Tenants may complain about your method of calculating how much each unit pays. They think it's unfair because they only shower once a week but they can hear the upstairs neighbor showering twice a day. You can put an end to this by showing them an actual utility bill. Why? Because a large percentage of the charges are base fees that do not change based on use!

I just looked at a utility bill and it has a total charge of $184.12 but $116.50 is from base fees! If I divide this bill by four units, each tenant would pay $46.03. If they were separately metered, each tenant would pay the $116.50 base fees and their individual use, which would be 3x higher than what they pay when sharing a meter.

There are a lot of options out there, but don't make it more complicated than it needs to be. Tenants actually save money when using a shared meter, so there's plenty of room for error when calculating how to distribute the charges.

[Richard F.]

Aloha,

If you are calculating a split between tenants, or as I have on some properties, between tenant and Owner, where the owner actually WANTS to provide a base electrical usage in the base rent, billing tenants for only excess usage, you need to take note of what additional items the tenant adds later. Specifically, I have had window AC's, sometimes multiple, or, (very sneaky) the portable, roll around type of room air conditioners that are really inefficient. These will result in those using their beginning configuration subsidizing for the heavy users. Another one I very recently caught, is Gaming computers...especially multiple systems. Some of these suck LOTS of juice to run the video processing. Lastly, be sure to check closets when doing your annual walk through inspections...I have found numerous Grow-light farms in closets (and basements).

[Karl Denton]

If the utilities are able to be separated that's absolutely the goal. However if its not there's a couple 3rd party sites where you can get devices that meter the usage for the individual apartments. Personally id slowly work on separating the utilities. However to my knowledge your not aloud to split costs evenly if its under one bill. At that point id compensate that into your rent cost. 

[Shane Kelly]

Quote from @Danny Jimenez:

Hello all! For anyone in the Cleveland Ohio area, what typically is normal in that area in terms of who pays the water/sewer, electricity, gas, & garbage?

Looking at small multifamily deals in the area and was curious as to who pays what so that i can more accurately run the numbers on the deals.

Thanks in advanced! 

 There is some solid advice in the posts above this, but if you're just looking for who typically pays what here like it sounds like- then electric and gas are almost always paid by the tenants. Water/sewer are combined and are tough to get set up in a tenant's name, so they're usually just billed at a flat rate, or included in rent, but I have heard of companies making tenants get the accounts set up. I don't recommend it though.

[James Wise]

Typically you'll have to play out like this.

- Gas - Tenant pays

- Electric - Tenant pays

- Water/ Sewer - Owner pays

[Bob Stevens]

Quote from @Danny Jimenez:

Hello all! For anyone in the Cleveland Ohio area, what typically is normal in that area in terms of who pays the water/sewer, electricity, gas, & garbage?

Looking at small multifamily deals in the area and was curious as to who pays what so that i can more accurately run the numbers on the deals.

Thanks in advanced! 

 MF you pay water, , unless its one heating system 

[Mohammed Rahman]

Hey @Danny Jimenez - as far as I'm aware, it's similar to here in NYC where tenant is responsible for their own utilities except for water/sewer which the landlord pays. Good luck running numbers! 

[Bob Stevens]

Quote from @Danny Jimenez:

Hello all! For anyone in the Cleveland Ohio area, what typically is normal in that area in terms of who pays the water/sewer, electricity, gas, & garbage?

Looking at small multifamily deals in the area and was curious as to who pays what so that i can more accurately run the numbers on the deals.

Thanks in advanced! 

 MF Owner pays water/ sewer, snow. lawn, 

[Eliott Elias]

Tenant should pay water/electric/gas

If all your competition is not doing this I wouldn't either