Split utilities with tenants or pay utilities and raise rents?

Question

I am a new investor and will be living in my duplex in which gas, water, and trash are on one meter, but electric is split. There is only one A/C unit which is connected to the rental sides electric bill. Living in Iowa the winters get below zero often and summers get into the 90's on hot days. Would it be better for me to suck it up and pay all utilities and try and get a little more from rent? Or should I let tenants pay for my A/C, get a little less in rent and possibly give a credit to help ease the electric bill a little? I would be paying gas, water, and trash already. I appreciate any insight at all!! Thanks

Patrick Donovan · Answer

Thank you all this has been helpful!

Steve K. · Answer

@Patrick Donovan  Some tenants like to have control over their expenses, so I would lean toward splitting utilities if possible.  In your situation, let them pay for your air conditioning and credit them in summer.  Makes your rental more competitive when tenants comparison shop.

Just my 2 cents.

Patrick Donovan · Answer

So Elizabeth would you suggest that I let them pay for my air conditioning and credit them in the summer months or just let them pay it and basically call it even since I will be paying heat and water? Because I agree that I could get myself into a jam with paying all utilities.

David Barr · Answer

You want as much control as possible as a landlord, so I would try to build it into the lease.

Elizabeth Colegrove · Answer

Be careful about building it into the rent. You need to know what is normal for your area. I know in my area there is a "ceiling" people don't usually "add" more to the rent price if utilities are included because they won't look at houses at the price.

Think of it this way

My houses rent at $1600 so does all my competition.

Utilties in this area are EASILY $300-$500 plus!

Trust me no one would touch my house at $1900 EVEN thought that was a deal for them.

I have found that taking all the extra off and requiring them to pay separately not only get me a better deal financially. It make my life this easier because its "parts" and I seem to do better with tenants too. just my too sense

Patrick Donovan · Answer

The only problem with splitting all utilities is I would not be able to afford it in the beginning because basically all I have will be going towards down payment, closing costs, ect. To do that I would have to put in second furnace and A/C and reconfigure HVAC and meters and all of that. With raising rents how much can I raise it simply because I include all utilities ? I would assume there has to be some limit.

Eddie Werner · Answer

I would split all utilities as a first and only measure to solve this.  From the weather extremes you experience you will recoup the cost of splitting everything within 1-2 years.  If they don't pay for it expect HIGH bills.

James Wise · Answer

@Patrick Donovan

welcome to the site.

I would build it into the rent. Just raise your price & offer free utilities. Trying to split it with the tenants will only lead to issues. "I didn't use that much A/C etc"