Should landlord or tenant pay for water in Grand Rapids?

General Landlording & Rental Properties
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Should landlord or tenant pay for water in Grand Rapids?

Ben D.
CA · Member since 2013 · 64 posts · 58 votes

Hello BiggerPockets - 

I could use some advice.  I own several rental properties in Grand Rapids, Michigan, and I am trying to decide whether I should pay for water and sewer service or whether the cost should be passed on to my tenants.  

My property manager argues that I should pay for water because:

    -  If water bills are unpaid, the City of Grand Rapids can put a lien on your home even if the bill is in your tenant's name

    -  The cost of water paid by the landlord is offset by higher base rents

My thought process is that the cost should be passed to the tenants because:

    -  With the tenant paying the bill, they will be most usage conscious and overall cost will decrease

    -  I am skeptical that having the landlord pay for water results in a dollar for dollar increase in base rents

    -  I have always had the philosophy that as many utilities should be passed to the tenant as possible

My plan is to push my property manager to change leases moving forward so that tenants pay for water, but I wanted to get the BiggerPockets community's thoughts in case I am missing something here?  Appreciate any advice.  

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Tim VandenToorn
Real Estate Professional · Rockford, MI · Member since 2015 · 301 posts · 138 votes
9y

We pay water for the tenant and bill them later for it.  This ensures the water is paid and not attached as a lien at move out. 

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  • Scott Angebrandt
    Investor · Belmont, MI · Member since 2017 · 8 posts · 1 vote
    9y

    I agree with your property management company.  I pay the water in my 3 Grand Rapids Properties.  I would pay the water but you can cap the amount so the tenants have some ownership in the process.  If they go over they have to pay the excess amount.

    0Reply
  • Charles Kao
    Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes
    9y
    Scott Angebrandt Ben Durwood I agree with PM and Ben. Caps are good but don't really see water vary whether I pay it or renters because if tenants are running alot of water they are probably running alot of gas to heat it which they pay. It also helps to say we pay sewer and water when tenant asks rather than just saying nothing out right.
    1Reply
  • Scott Angebrandt
    Investor · Belmont, MI · Member since 2017 · 8 posts · 1 vote
    9y

    I don't put a cap on the water usage on my Properties yet.  I have only had 1-2 kinda ridiculous bills in my 17 years being a landlord.  I pay the water bill on my busines credit card as there is no fee to do this with the city (I get 2% back with my cc)  In addition, the water bill is a utility that is a write off for each property for the landlord.  More tax savings is a good thing.

    1Reply
  • Courtney Sorrell
    Rental Property Investor · Grand Rapids, MI · Member since 2015 · 55 posts · 8 votes
    9y

    @Ben D., I'll add my voice of support with your PM and add an additional point- tenants expect water and sewer to be included in most multis and singles, as well as trash in most cases. I have attracted savvy tenants who know what is customarily included in the past. I pay water and sewer on all of my properties.

    There are also a good number of multi-family properties in GR that pay heat and electricity if the big mechanicals aren't split and there are tenants who specifically look for that.

    1Reply
  • Ben D.
    OP
    CA · Member since 2013 · 64 posts · 58 votes
    9y

    Thanks @Courtney Sorrell; @Charles Kao; @Scott Angebrandt.  Appreciate the advice and looks like I'll stick with my PMs suggested strategy of having me pay for water.  

    0Reply
  • Tim VandenToorn
    Real Estate Professional · Rockford, MI · Member since 2015 · 301 posts · 138 votes
    9y

    We pay water for the tenant and bill them later for it.  This ensures the water is paid and not attached as a lien at move out. 

    4Reply
  • Randy CharboneauBusiness Member
    Residential Real Estate Broker · Grandville, MI · Member since 2016 · 109 posts · 78 votes
    9y

    @Ben D.  Hi Ben!  Here's my take.  Because water is the only utility that sticks with the house regardless of who pays, you want control over that since its your property.  @Tim VandenToorn stated his Property Management company does this and its wise to do so regardless of whether the tenant will be financially responsible for reimbursing you.  Most multi-unit homes in the area include water in the rent payments since water is rarely split going to a property and its not fair to "split the bill" when one tenant will end up taking 2 hour showers all the time.   If you have Laundry facilities in your units, keep in mind the water bills for those properties will be much higher and you'll have to plan accordingly.

    [email protected]616-262-0001
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    0Reply
  • Ben D.
    OP
    CA · Member since 2013 · 64 posts · 58 votes
    8y

    Hello Grand Rapids investors and professionals - 

    Like I mentioned, I am an out-of-state investor with several properties in Grand Rapids.  My properties have not been cash flowing nearly as well as I hoped they would, and I'm looking at the best way to cut costs.  My property manager has me paying for landscaping and snow removal as opposed to the tenants, and I wanted to see if that is typical in Grand Rapids?  About 10% of my gross rents in 2017 went to landscaping and snow removal.   I'd prefer to pass that cost to the tenant, but I don't know if tenants expect landlords to be paying for landscaping and snow removal in Grand Rapids.  Thanks in advance for the help.

    0Reply
  • Tim VandenToorn
    Real Estate Professional · Rockford, MI · Member since 2015 · 301 posts · 138 votes
    8y

    @Ben D. is your property a single family or a duplex?  I would be happy to review your cost to see if there is room for improvement or is the cost are standard.  No obligation.  Generally if it is a multi-family the owner is responsible for lawn and snow, but not always. There are alot of factors to consider in who pays what.  

    2Reply
  • Tyler Lyons
    Grand Rapids, MI · Member since 2015 · 45 posts · 13 votes
    8y

    Hi @Ben D.,

    I agree with @Tim VandenToorn that there are a lot of factors to be considered in determining whether some of these costs can or should be passed on to your tenants. Also, I think you are smart to challenge your property management company on this.

    I have a duplex in town and for that property, the water isn't separately metered and additionally, I also cover the cost of snow removal and for mowing the lawn, because there really isn't a good way to split those amounts. 

    However, I also have a single family home in which it's built into the leasing agreement that the tenant is to cover the cost of water. The PM company that I use pays for the water to make sure it's covered, then I see a credit come through after the tenant reimburses me for the cost of the water. The fact that the tenant is covering the cost of water didn't seem to have an impact on the rent that I was able to get either as my rent for this property is solidly toward the top of the market. 

    It's definitely a smart move that you are scrutinizing and challenging your operating expenses. Also, if your management company isn't willing to think outside of the box a bit with you on this one, it might be a red flag. 

    2Reply
  • Jim S.
    Sterman, MI · Member since 2017 · 378 posts · 306 votes
    8y

    The small towns my rentals are in they bill every 3 months. So when you get the bill you are towards the end of the 4th month. And then they move out. Good luck collecting. The bill only varies a couple dollars through out the year. I add it in to the rent and that way I don't get stuck with it at the end. It comes back to the property owner any way.

    1Reply
  • Ben D.
    OP
    CA · Member since 2013 · 64 posts · 58 votes
    8y

    Thanks @Tim VandenToorn and @Tyler Lyons.  Appreciate the advice.  

    To give a bit more background - I have one four-plex and several SFHs.  The properties are primarily in Heritage Hill and Highland Park. My property manager has me cover the water and the landscaping/ snow removal on all properties.  I was always of the mind set that as many costs as possible should be passed to the tenant.  My property manager argues that they are able to get increased rents because I pay all these costs, but I am skeptical that there is a dollar for dollar increase in rents for every dollar spent on water and landscaping.  The cost of water, landscaping, and snow removal combined is often about $175 - $200 a month, and I would be surprised if my rents were $200 above market.

    You had both suggested the idea of me paying water to the City of Grand Rapids directly, and then sending a bill every month to the tenants to have them reimburse me.  I like that idea and will give that suggestion to my property manager.    

    0Reply
  • Paul LeasonPro Member
    Realtor · Grand Rapids, MI · Member since 2012 · 172 posts · 70 votes
    8y

    @Ben D. well it seems you are I are completely out voted on this one!  For all my SFHs I make the tenant pay for everything, incl water, yard care and snow plow. I tell them that it’s  like owning the home but I do any/all repairs. I have the City of GR send me a Guardian Copy of the water bill so I can see that they are paying it. If they are not paying it, I get on their case right away.  You can also look the bill up on line and see the balance. And there’s a clause in the lease that states that any unpaid utilities become additional rent, so that IF I need to pay the water, to prevent the lien, then they still are responsible and if it comes to an eviction it will get added to the money judgement. If they move out mid-cycle, you just call GR water and request a final bill to know what they owe.  

    For my duplexes, I pay water/sewer, yard care and snow plow.  

    IRT @Scott Angebrandt comment about it being a tax right off; I don’t see it makes a lot of difference. If you charge an extra $50/mo rent and then right off $50/mo for water, your taxable income is the same anyway, so no benefit. Net zero. 

    That’s the way I have been doing it since 2008 anyway!!

    @Scott Angebrandt

    616-717-1901
    4Reply
  • Rob Gervais
    Accountant · Grand Rapids, MI · Member since 2018 · 28 posts · 7 votes
    8y
    Ben Durwood I pay water & snow removal at my duplex (no yard to speak of). As many have said here already, I just include the cost in the rent. It hasn’t been an issue for me (knock on wood). Have you evaluated how much you are charging recently? Heritage Hill and MidTown are pretty hot areas right now. You might be able to cover your costs with a rent increase.
    0Reply
  • Scott Angebrandt
    Investor · Belmont, MI · Member since 2017 · 8 posts · 1 vote
    8y
    @PaulLeason. Great name for the the rental business by the way. The trash and water I cover on all of my six units. Obviously they are tax deductible expenses and help me in tax savings. I understand the semantics on your point about the tax savings but I guarantee 90% of landlords out there would rather pay the bill then have the tenant entrusted to do this. Having them worry about water, snow removal, heat, electric, trash, renters insurance and cable takes time and could cause too much confusion to your renters. It’s could be getting in the way of the most important part....receiving the rent from your tenants. @Ben Good luck with finding a solution to the water situation.
    0Reply
  • Paul LeasonPro Member
    Realtor · Grand Rapids, MI · Member since 2012 · 172 posts · 70 votes
    8y
    Yeah for sure it seems like I’m in the minority here and it would seem that most PM companies have the owner pay water. I have just always wanted to have the tenant have some ownership in what they use, as all too many times I see the thermostat set at 80F in the winter, with the open window used to moderate temperature!! Then it goes to tenant choice and finding a more responsible tenant. I try to do that by having nicer units and higher rents. 

    Originally posted by @Scott Angebrandt:

    @PaulLeason. Great name for the the rental business by the way. The trash and water I cover on all of my six units. Obviously they are tax deductible expenses and help me in tax savings. I understand the semantics on your point about the tax savings but I guarantee 90% of landlords out there would rather pay the bill then have the tenant entrusted to do this. Having them worry about water, snow removal, heat, electric, trash, renters insurance and cable takes time and could cause too much confusion to your renters. It’s could be getting in the way of the most important part....receiving the rent from your tenants.
    @Ben Good luck with finding a solution to the water situation.

    616-717-1901
    0Reply
  • Scott Angebrandt
    Investor · Belmont, MI · Member since 2017 · 8 posts · 1 vote
    8y
    @Paul Leason I don’t pay for heat or electric in any of my units. So if they want it 80 degrees than can go for it. I wouldn’t buy the type of units were landlord is responsible for heat or electric.
    0Reply
  • Account Closed
    Real Estate Agent · Grand Rapids, MI · Member since 2014 · 493 posts · 200 votes
    8y

    @Paul Leason has a lot of great ideas on how to handle water.  Here's a little more:  Grand Rapids may be doing away with the Guardian copy of the bills.  However, you can now pull a report online on all your properties and see the status of all of your tenants' water bills.  This report is a life saver for staying on top of the bills before they are past due.  I'm hoping to bring the Grand Rapids Water Department into the office for training on the new system and reporting for landlords soon.   So, keep on the look out for it--you'll all be invited!

    Additionally, Michigan state law enables a landlord to file a "water affidavit" for each of their rentals where the tenant is responsible for the bill.  The affidavit prevents the municipality from putting a lien on your property for unpaid bills.  Each municipal water service handles the filing procedures differently.  The gist of most of these is that you must file a copy of the lease (or your tenant does) showing that they are responsible for the water bill and an affidavit signed by the tenant saying they understand they are responsible for the water bill, etc.  Some municipalities will provide you with the form they want you to use--some will accept yours.  Some (as in Grand Rapids) will also charge your tenants a water deposit--even if they don't charge other residents a water deposit.  The deposit in Grand Rapids is nearly $500.  (This of course increases the cost of rental housing in Grand Rapids and creates a disparate impact on tenants--but we'll not go there in this discussion.)  Of course, there is always a loop hole whereby the city can get your money, i.e. they'll hold water up for ransom and not turn on the service for a new tenant until the old bill is paid--so, it behooves you to get the cash from the tenant before they move on.

    Good luck with all your investments!

    Clay

    3Reply
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