How to proceed with non-separate utilities

Albuquerque, NM · Member since 2016 · 57 posts · 9 votes

Can anyone help me with this dilemma? So I have two units, that the electricity for both is under one meter. How do I proceed to rent out these units? If I pass the electricity costs to the tenants, then I leave the burden to them to discuss and negotiate how much each tenant used that specific month. I know that If I was in this situation I would not want that responsibility, because there is room for one or the other to take advantage of the situation. On the other hand, if I as the landlord take the responsibility to offer a flat rent with utilities included. I am in a vulnerable position with the tenants using the electricity without the fear of the consequences of high energy consumption. Has anyone else had this issue, and how did you mitigate the situation?

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

Do not put tenants in charge of utilities. That's a recipe for disaster when Tenant A complains Tenant B uses more or that Tenant B hasn't paid their share for the month.

Contact the utility company and ask them for an average use for the past year. They will typically give you a high month, low month, and an average. If the average is $200, add 10% then split it equally among the tenants ($200 + 10% = $220, each tenant pays $110). Some months you won't collect enough to cover the bill but other months you should collect extra. After 6 - 12 months, compare what you've collected with what you had to pay and then increase/decrease accordingly.

Put this in writing. Also put in writing that you will evaluate actual use vs. funds collected and adjust their bill up or down based on actual use.

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Nicole A.Pro Member
Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
8y
Some landlords will send the bill to the tenants for them to reimburse split by the number of units in the building. Others raise the rent a little to include utilities into the rent, but have a clause in the lease that states if any bill is over a certain amount that the tenants will split the difference on the following month's rent.
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Peter M.
Rental Property Investor · DFW, TX · Member since 2013 · 953 posts · 910 votes
8y
I will second what Nicole said. It just comes down to how much time you want to spend on it. Including it in the rent is easier and less of a hassle for you. Use it as a marketing tool and put the consequences of extremely high bills in the lease.
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Jesus MorenoPro Member
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Albuquerque, NM · Member since 2016 · 57 posts · 9 votes
8y
@Nicole A.@Peter M. Yeah that's what I was thinking would be the easiest way. I just didn't know what was allowed. is it possible to charge extra for the tenants going over the acceptable KWH? in hopes of training them to be more energy conscious?
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y
I would be looking into adding a second meter to split the hydro.
This is a issue that for me is a deal breaker when investing in multi units. If the purchase price in not low enough to allow me to affordably split all utilities I will pass on the deal to avoid the situation you are facing.
Definatly look int th ecost to split utilities.
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Account Closed
Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
8y
Where I live, the apartments have individual power meters. I had to establish my account with the power company (the landlord needed the account number) before I could sign the lease.
However, the entire complex of 350 units gets one bill for the sewer, trash, and water. The landlord outsources this information to a utility management company, which then figures out how much is owed by each apartment. This outside agency also tacks on a $4 per month admin charge per apartment. My monthly payment to the landlord includes both the rent and this allocated utility charge.
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Peter M.
Rental Property Investor · DFW, TX · Member since 2013 · 953 posts · 910 votes
8y
@Jesus Moreno You can write just about anything you want into the lease; whether it holds up in court is a different story. There is certainly nothing illegal about it (at least not in Texas) but if you have an attorney write up your lease he/she will be able to word it to your benefit. Otherwise you can use New Mexico's realtor lease and just add it in the special provisions section. If you have a good sit down with tenants before/during the lease signing and explain everything upfront, you will reduce the risk of it coming back to bite you in the *** and they will be conscious of it. Just make sure you are firm with your penalty for abusing it. If you explain your reasoning logically, most people will understand and abide.
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Dick RosenPro Member
Property Manager · Gilbert, AZ · Member since 2009 · 1k+ posts · 451 votes
8y
On a duplex I would calculate the percentage based on the square footage of each unit. If the are both 500' split the bill 50/50. I also send a copy of the bill with that calculation on it every month. Some states actually require that you do this.
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John W.
Rental Property Investor · Buffalo, NY · Member since 2017 · 257 posts · 130 votes
8y
I have one duplex with that issue... gas and electric are shared. I advertise the apartment as 900 a month then add a flat rate on top of that which is about $50 more than I expect the utilities to be. Then the lease allows me to adjust rent as needed to cover high utilities. Not an issue for me, and I would rather have one boiler than two.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
8y
Do not put tenants in charge of utilities. That's a recipe for disaster when Tenant A complains Tenant B uses more or that Tenant B hasn't paid their share for the month.
Contact the utility company and ask them for an average use for the past year. They will typically give you a high month, low month, and an average. If the average is $200, add 10% then split it equally among the tenants ($200 + 10% = $220, each tenant pays $110). Some months you won't collect enough to cover the bill but other months you should collect extra. After 6 - 12 months, compare what you've collected with what you had to pay and then increase/decrease accordingly.
Put this in writing. Also put in writing that you will evaluate actual use vs. funds collected and adjust their bill up or down based on actual use.
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Jesus MorenoPro Member
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Albuquerque, NM · Member since 2016 · 57 posts · 9 votes
8y
@Nathan Gesner @Dick Rosen both of your suggestions are great, and sound like easy implementations, not to mention fair. Something that should be easy to justify to tenants. thank you very much for your suggestions.
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Jesus MorenoPro Member
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Albuquerque, NM · Member since 2016 · 57 posts · 9 votes
8y
@John W. So I think I follow what you are saying but I need some clarification. correct me if I am wrong but you are saying, you itemize the rent, ( Rent, utilities etc) and then you collect a flat fee of $50 or $50 exceeding what you expect?
Ex. if you are expecting the Electric to be $200/mo you collect $250 that month.
How do you put this into writing in your lease, and how do you justify the amount you ask for each month to your tenants?
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Jesus MorenoPro Member
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Albuquerque, NM · Member since 2016 · 57 posts · 9 votes
8y
@Peter M. thanks for the suggestion, an NM attorney should know how to word what I am asking for in terms of the fee. Great Tip!
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John W.
Rental Property Investor · Buffalo, NY · Member since 2017 · 257 posts · 130 votes
8y
I advertise the apartment at the base rent, lets say 900. lets say i figure gas/electric are going to be a total of $200/month on budget billing. So I add $100 for the entire duplex and if the apartments are similar size then i would divide that $300 number evenly so each would be $150 for utilities. Thats a conversation i have up front saying that the utility fee will stay the same unless they exceed it.
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Michael Gansberg
Investor · New York City, NY · Member since 2015 · 388 posts · 563 votes
8y
@Jesus Moreno - I'd keep it simple and just list the place with all utilities included. The tenants will expect to pay more for it. I'd swap out all the bulbs with LED bulbs(use 2700 K, or 3000 K at the most, anything higher tends to be too blue for residential.) This will keep the bills lower, as LED bulbs use about 80% less energy than halogen/incandescent, and about 30-40% less than fluorescent.
If you haven't put in appliances yet, go with energy star. While you're at it, put low-flow toilets in(Niagara Stealth from Home Depot uses 50% less water than a standard toilet,) and use Water Sense faucets and shower heads.
Then put a clause in the leases allowing you to end the lease with 30 days written notice. If you see someone running the AC with the windows open, end their lease and tell them why. But hey, if you do efficiency upgrades, you could end up profiting more by including utilities- if you charge $100 more per month for all utilities but the utility bill if only $50/unit, you're doing pretty well.
Michael
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Jay Helms
Rental Property Investor · Gulf Breeze, FL · Member since 2014 · 1k+ posts · 733 votes
8y
@Jesus Moreno - check out the formula for RUBS - Ratio Utility Billing System and make sure your state statues/laws support it. Basically it's a legal way to bill back utility usage based on # of bedrooms, occupants and the master meter bill. We do this for water usage on our apartment complex.
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Lesley Resnick
Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
8y
I see this a-lot in buildings that were not originally more than one unit. Modern construction of Multi-family generally has a water and electric meter per unit. If the power and water are the same utility (jacksonville), I generally find when the units are built with both.
I have looked into retrofitting a number of times and the numbers have never played out.
The two biggest electric uses are Heat/ac and the water heater. Lighting is generally estimated at 20%. Unless the equipment is old, upgrading working equipment to more efficient is cost prohibitive. While you may save some money on the bill, the total return is measured in years. I have become a fan of the tankless water heathers. They only run when there is demand for hot-water and considerably more efficient. Leaking toilets and faucets are the biggest water wasters.
Solar power suffered from the same issue. There is a savings, but the infrastructure costs is huge. It has been long advocated that solar would be best leveraged in a common bill scenario, where the users bear no connection to the cost.
My suggestion is to build the cost into the lease and move on. If the costs get out of control then adjust the rent. Jacksonville Electric, offers free services to make assessments of the power and water use. They were very realistic in what I could expect to save and what it would cost me to upgrade. I ultimately decided I would upgrade when the equipment failed.
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Jesus MorenoPro Member
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Albuquerque, NM · Member since 2016 · 57 posts · 9 votes
8y
@John W. Thanks for the Clarification that makes sense. So do your tenants every bring up the issue that you are charging an extra $50, or do you just say that the extra $50 is averaged out throughout the year with peak/non-peak seasons?
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Jesus MorenoPro Member
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Albuquerque, NM · Member since 2016 · 57 posts · 9 votes
8y
@Michael Gansberg that's a great idea to be as energy efficient as possible even if the landlord is not responsible for ht utilities, a low energy bill is to the benefit of the tenant. I could also add a clause in the lease, that should an LED burn out, the tenant is responsible for replacing that LED with an LED of my specification, if not the lightbulb will be replaced at their expense. I could see tenants replacing with a simple incandescent bulb just to avoid the hassle of buying a specific bulb.
Although the electric is master metered, the water is sub-metered, do you think that I should include all utilities as part of the rent or just the ones that I can't pass to the tenants?
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Jesus MorenoPro Member
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Albuquerque, NM · Member since 2016 · 57 posts · 9 votes
8y
@Jay Helms Oh so basically, is it the way the utility breaks down your bill? An itemization of the bill ber bill?
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John W.
Rental Property Investor · Buffalo, NY · Member since 2017 · 257 posts · 130 votes
8y
@Jesus Moreno they don't really know theyre paying extra as utilities are cheaper when not divided and $150 flat fee is reasonable.
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Jesus MorenoPro Member
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Albuquerque, NM · Member since 2016 · 57 posts · 9 votes
8y
@Lesley Resnick Yeah you're right going to all energy efficient right off the bat can be a daunting task, but replacing equipment as they fail is very manageable. Thank you for your input!
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Jesus MorenoPro Member
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Albuquerque, NM · Member since 2016 · 57 posts · 9 votes
8y
@John W. I guess you're right, I'm sure they don't go through the trouble of trying to break down their bill.
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Michael Gansberg
Investor · New York City, NY · Member since 2015 · 388 posts · 563 votes
8y
@Jesus Moreno - if you can bill them for water use(because that’s separately metered,) you definitely should. @Lesley Resnick makes a great point- a solar electric(solar PV) system might make sense here.
I wouldn’t get down to specifying how bulbs are changed- that’s way too micro. LEDs last over 10 years(some over 20-30 yrs) in household usage, so if 1 randomly burns out, you’ll notice it at turnover and the cost for a few month’s usage won’t be worth mentioning.
Michael
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Jesus MorenoPro Member
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Albuquerque, NM · Member since 2016 · 57 posts · 9 votes
8y
@Michael Gansberg @Lesley Resnick I guess I would have to do some pricing for what it would cost to sub-meter vs. PV, you never know it might be worth it. Even if it is one of those companies that they own the equipment but the bill is a flat rate and paid to the compy that owns the PV system.
Ok, scratch the LED Specification haha.
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
@Jesus Moreno the only fair thing to do is split the utilities. It will be an upfront cost but will avoid problems in the future. Many states don't allow you to legally split utilities. There is no fair way to split. Even using square feet or number of occupants is not fair because electricity usage depends more on how much they run major appliances like the air conditioner.
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