Splitting utilities in a duplex
Hi everyone I am looking at making an offer on my first deal. I would like to have each tenant pay for their own utilities. I know some laws may require that certain things be set in place to have tenants pay for their own utilities. Outside of the law what are the necessities to have tenants in a duplex pay their own utilities. Such as water, trash, and electricity? I know the electricity needs to be multimetered, but does multimetering the house also cover the water usage for each individual unit?
Also if I have each unit individually metered can I then have the utility companies charge the renters directly for the utilities? if I can do such a thing I will be including this in the lease.
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- Real Estate Broker
- Cody, WY
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The best solution is for each unit to be metered individually and then require tenants to set up their own utility accounts. However, it's not cheap to spit the utilities so this may not be the best choice financially.
Another option is to do what @Jonathan Towell recommends. Contact the utility companies and get an average for the past year. If an average for the past year was $200 and you have two units, that would be $100 to each tenant. So you increase the rent by that amount and then advertise that the rent price is $XXX.XX with utilities included.
Two recommendations:
1. If average use is $100 per unit, consider bumping it 10% to cover overages, increases in utility rates, etc.
2. Add a clause in the lease that says something like "Rent includes the following utilities: electric, water, sewer, trash, and natural gas. The included utilities are based on historical averages of $100.00 per month. If your actual use exceeds the historical average, you shall be charged for the difference."
The second clause is important because tenants often abuse utilities when they are included in the rent. I have an 8-plex where electricity is included in the rent. All the tenants spend around $60 - $65 a month in actual use which is within the range I budgeted for. However, one tenant is using $145 a month so I have to charge him for the extra use.
- Nathan Gesner
Hi Jacob,
If you individually meter each unit, you can have the tenant get the utilities in their own name. That is a great way to do it, but can be expensive.
You might also look into a ratio utility billing system (RUBS). Basically, it is a formula where you take the bill from the utility company, the split it between the tenants based on occupants per unit. It requires you to pay the utilities, then get reimbursed from tenants. That means more paperwork each month. It can also be frustrating for one tenant to pay more than they owe because another tenant ran the A/C too long. But, it is a cheaper way to do it.
I hope that helps. I wish you the best!
- Real Estate Broker
- Cody, WY
- 41,513
- Votes |
- 28,242
- Posts
The best solution is for each unit to be metered individually and then require tenants to set up their own utility accounts. However, it's not cheap to spit the utilities so this may not be the best choice financially.
Another option is to do what @Jonathan Towell recommends. Contact the utility companies and get an average for the past year. If an average for the past year was $200 and you have two units, that would be $100 to each tenant. So you increase the rent by that amount and then advertise that the rent price is $XXX.XX with utilities included.
Two recommendations:
1. If average use is $100 per unit, consider bumping it 10% to cover overages, increases in utility rates, etc.
2. Add a clause in the lease that says something like "Rent includes the following utilities: electric, water, sewer, trash, and natural gas. The included utilities are based on historical averages of $100.00 per month. If your actual use exceeds the historical average, you shall be charged for the difference."
The second clause is important because tenants often abuse utilities when they are included in the rent. I have an 8-plex where electricity is included in the rent. All the tenants spend around $60 - $65 a month in actual use which is within the range I budgeted for. However, one tenant is using $145 a month so I have to charge him for the extra use.
- Nathan Gesner
A few thoughts on splitting utilities.
1. Local laws may prevent you from putting water in a tenants name so you may have to bill back even once it’s separately metered.
2. If the building wasn’t built as a true duplex you may have cross wiring issues and even cross plumbing. Both of these would require a significant amount of work to separate. You will also probably need a new fuse box installed and you may even need to pay for an upgrade from the pole to the house if you put in a high enough amp service in each box.
3. Assuming you don’t have electric heat you may need to run new gas lines and add a second furnace.
Conclusion: I would only consider doing this if I was doing a significant enough rehab that I would be tearing out walls anyway and if the deal was good enough to cover the cost. You may wish to move on and hold out for a property with split utilities.
Keep in mind that even if you can have the tenants direct charged for utilities, each utility company will require their own deposits, an additional move in cost for tenants, and could ultimately hold you responsible for unpaid bills. Ask around to find out what you're dealing with. Many utilities have a program where landlords get copies of past due notices, but it takes a lot of time to follow-up, and with timing issues the unpaid amount can get quite large.
We have had good luck having tenants pay their own electricity and keeping the WSG in our name and included in rent. It depends on normal practice in your area as well, you can gauge this form Craigslist ads.
Another consideration is property management. If you are self managing it doesn't matter, but with a PM having utilities included in rent means more dollars are going towards PM fees.
Thank you all. This information was very helpful. I currently own a duplex without separate utilities and struggling to figure out a fair method of handling. I am choosing to pay the utilities and include the clause above in lease. It's not that much effort and ensures the bills get paid and is sort of self-managing to ensure usage does not get out of control.
Hello,
We have come up with a way to digitally monitor the electricity use of each unit and email them each the bill every month.
@Terry Alexander can you share with me how you digitally monitor the electric? I have a duplex I pay the utillites on and the electric went up more than 3x normal in 2023. I lost a lot of money when everything went up. I gotta stop the bleeding.
@Jacob Yates, first look at who provides each utility. If the utility provider is a government entity then you will likely want to keep the bill in your name even if the units are separately metered.
The reason is that unpaid municipal utilities in most places become liens against the property. So, trusting the tenant to pay can leave you stuck with a large bill later on that you will be stuck paying (along with late fees and interest) to avoid losing your property. It is also MUCH MUCH harder to collect this money back from a tenant once they have moved out of your property. So, its better to bake these into the rent or bill them back each month.