Hi There Everyone,
I'm wondering if I can split the utilities cost between tenants for a duplex I am looking at. Unit 1 is a 3 bed 1 bath (upstairs) and Unit 2 is a 1 bed 1 bath (downstairs). Is it possible/legal to have the utilities under my name and I charge the tenants for the usage?
I'm thinking like based on number of people living in each unit; so say 3 people living upstairs 1 living downstairs, upstairs unit gets charged 75% of the utilities cost, downstairs gets charged 25%.
Any advice for a new investor? I think this property I found is a good deal but the utilities are not split. Also the heating/cooling is not split up either so I would need to figure something out for that as well. Any tips in these departments?
If it is not cost effective to split all utilities after you buy I would pass on any multi unit that was not separately metered. Not having separate meters only complicates your business and is easily avoided by shopping for the right property up front. Billing utilities to tenants is a pita that should be avoided.
If the property is a good deal have your cost to have meters and electrical/plumbing/heating split built into your purchase offer. It will mean making a much lower offer but better you lose the deal than lose money.
Bottom line is that properties with all utilities separately metered should be a must have when investing.
Read up on landlord tenant law. It is legal to split utilities if done in a fair manner. That being said I don't do it currently but it is allowed. There are water metering devices that can be set up to meter unit usage for you. I wouldn't make split utilities a deal breaker. If a reasonable amount of utilities can be paid by you and the numbers work go for it. Just make sure the heating equipment is working good. Check for water leaks. A bad toliet flapper can run you $50 a month or more. One duplex I had I would buy them plastic for the windows. Cheap way to save. I ended up gutting the apartment and insulating better and putting in new windows so now I don't worry about that.
Most utility companies can provide you with averages for the past year. Let's say the average for the entire building, all utilities combined, is $400 a month. It will likely be higher in the winter and lower in the summer but you are concerned about an average because it will balance out at the end of the year.
Take that $400 and split it by number of occupants, square footage, or whatever system you divise. For example, you could charge $250 for the larger unit and $150 for the smaller unit. Try to make it fair as possible and be able to justify it when the tenants question the charges.
Personally, I bump the charge up 10% because tenants tend to squander utilities when they don't see the bills each month. So the downstairs may pay $275 and upstairs $165.
One thing I definitely don't recommend: receiving the bill each month, calculating the shared charges, and then notifying the tenants of how much they owe. It's a lot of additional work and frustration for all concerned. Better to set a regular budget and include it in the rent.
We charge a flat fee to all of our tenants for water/trash/sewage each month ($30 on top of $650 to $825 monthly rent). $30 is about 10% to 15% of the water/sewer costs we pay.