What Expenses (IF ANY) Do You Cover on SFH's?

28 Replies

Hi BP, 

How do you guys typically go about expenses on a SFH? Do you have a general rule, or advertise relative to what the market is offering? I have yet to purchase a property, but think it would be smartest to pass the utilities, trash, and snow removal/lawn down to the tenants due to there being less variance; however, I'm having a hard time estimating rents as rentometer, Facebook, Craigslist, etc. doesn't always include if a listed rental rate is or isn't including X,Y,Z with rent.

Any help is greatly appreciated.

Thanks!

Generally speaking, tenants are responsible for all utilities + yard maintenance on SFH. Multis can be a different story.

@Lee Stephens in my market all those things are the tenants responsibility. There are certain markets where the utility bill go against the property and if the tenant doesn't pay you will be stuck. Don't know if this is the case in Illinois or Chicago in particular. 

Thank you guys for the input. I was under the same impression until I saw houses in the market I'm investing in (Northwest Indiana) being advertised for having certain utilities paid for which has been making it difficult for me to determine fair market rent

@Lee Stephens bear in mind that if they are offering utilities, and you are not, you are at a disadvantage and will have to be priced accordingly.

@Jason D. Thank you - that's what i'm getting at here.. some are offering utilities and others are not. It's caused me to have a difficult time budgeting prior to getting into a deal. On rentometer it will only list the recent rent rates but doesn't get into detail on utilities offered. Facebook, Craigslist, and Zillow are pretty spotty. I think my next step would be to try and create a relationship with a couple PM's and see if they will provide any input

@Lee Stephens you could just do it by trial and error. Test the waters without, and gauge the response. If it seems like people are put off by excluding utilities, you can always adjust. May take an extra couple weeks to get a tenant if you swing and miss, but I would say it's worth a shot

@Lee Stephens we pay sewage and if there is an HOA we pay that as well. other then that they pay everything else.

@Jason D. It can make or break my investment, that's the issue.

For example, if I'm finding that rents are going for 1,200 for properties similar to mine (don't know for certain if that's with or without utilities) and my budgeted numbers are cash flowing at 250/month without utilities, then if by chance I needed to include utilities to get a renter, it would kill my investment. The underlying issue comes down to knowing what rents are going for with and without utilities included and I've found that hard to determine with Rentometer, Craigslist, Zillow, etc. Do you see where I'm coming from?

@Lee Stephens ok, I understand better what you're saying. The easiest thing to do would be to analyze as if utilities are included. That way you know you're covered. Better to be conservative on your first property anyway, and this is a good way to make sure you are

It sounds like you are a detail minded person who wants to be very careful with research, planning and the decisions you make. So, if you don't mind putting in a little extra research and you really want to know which rental prices include which utilities, you can call on places for rent and ask what utilities are included. You don't need to pretend like you are a potential tenant, just ask and then say thank you and end the call.

And I do like your idea of talking to the local property mgmt co's. You could also go to local investor meetings and get their opinions as well. I wouldn't put my faith in Rentometer or any online guesstimating system if you want actual facts. Ask actual local people involved in rents there.

@Lori Greene You hit the nail on the head! Thanks, I will definitely give a call to people/companies that have units listed. The investor meetings and talking to people involved there has been tough as the market is about 60-75 minutes out from me.

 Will surely make it work nonetheless :)

I can't speak for every market, but tenants are responsible for all utilities and lawn care for over 95% of our SFR's. There may be some areas in Indianapolis where the sewer bill has to be paid by the owner, but other than that... it's typically going to be the tenants.

As far as overhead goes, I find the 50% rule to be pretty accurate if you look at a 5 year snapshot. Basically, your NOI will average to about 50% of the net on a property over a period of time, but be sure to understand that NOI doesn't account for your debt service. The biggest variance will be your vacancy rate. If you are turning tenants every year, it will likely be lower... if you keep your tenants for a while, it will be higher.

When your doing your research, write down the addresses that come across your comps. Zillow keeps old listing descriptions, pictures, and even pricing history (taxes and pricing history tab.) This can be great data to look over. I can give you an idea of the size, condition, and trim of the comparable home and the listing descriptions will usually mention if a utility is included in the rent as well.

I also like to look a currently listed homes in that area to gauge the current market, but until a home is leased, it's speculative. Homes that are over-priced typically have to have the price reduced to rent, so the data can be misleading. Just try to make sure that you're comparing apples to apples.

@Lee Stephens

I pay sewer and trash. They are both run by the municipality and can place a lien if it goes unpaid. Tenants pay everything else.

@Lee Stephens Maybe call and ask the landlord/PM. Then you'll know for certain.

I pay the HOA, I also pay the sewer (as it must be sent to the property owner.) but I bill that back to the tenant. The rest of the tenants must be placed in tenants name before they get keys. (They switch back to my name automatically when tenant cancels service.(So I know they did and never have to pay reconnect fees. Also makes "make ready" between tenants easier.

@Lee Stephens

I don't pay any utilities trash etc with my SFH. This is a benefit to SFH vs MF. Now, if I had someone there who wasn't taking care of the yard, I might consider paying for that but billing them back or adding it into their rent.

@Lee Stephens

I pay electric water and trash for all of my properties for 2 reasons:

1. I never have to call and start a cleaning ticket, have utilities turned on for cleaning, worry about heat, etc.

2. I make a ton of money on it. Well not a ton, but a good bit. I live in a low rent area, Arkansas, but purchase prices are low as well. Here is an example. 10 unit apartment building all 1bed/bath paid $175k. Base rent would be 350 max. With utilities paid, I get $550. I figure water/trash to be roughly $50 per unit and electric to be around $100. I have had a few tenants go over the $50 water, but rarely. My leases states those numbers as maximums I will pay and the tenant is responsible for overages. My actual average water bills are $40 and electric is $75. I’m making an additional $85 per unit by paying utilities, because I could never ask $435 and get it, but by offering utilities paid, I can.

@Lee Stephens

I'm in the same boat as you with analyzing deals but I'm looking at multi-family. I see a great potential listing then find out utilities are covered by the landlord and so that turns it into a bad deal. Some listings don't say what's covered and it makes calculating the noi difficult

@Lee Stephens just call the other rental listings and see what is included in the rents. Picking up the phone and talking to people is going to give you the best information, not some web app that has 100 different inputs and Variables.

Due to an experience with our very first tenant (massive roach infestation), we started including quarterly pest control and weekly garbage pickup and upped the rent amount. This is more to protect our investment versus being a benefit to the tenant. We do advertise it because they see it as a benefit, though. We are in the south where we have more pests. If we were back up in Wisconsin, I might feel differently.

We have rented places (on the tenant side) in Wisconsin and mostly we have been responsible for snow removal and lawn maintenance. The last place we lived, the landlord lived right down the street so when the snow was heavy, he would drive his 4-wheeler plow to at least get the sidewalk (ultimately that liability is theirs if someone was to fall) but he would often help with the driveway and we REALLY appreciated it. Our rent there was higher than in places where we were responsible for it ourselves, not by a lot, though. Personally, if a landlord could provide snow removal and charge us via increased rent, I would be all about it (husband’s day job had him working 80 hours a week and we have very young kids so I wasn’t able to help in this area very much and he was always exhausted from work). Just my two cents on the snow issue. If it is not something that is affordable for the landlord to provide as a pass through expense, then we would just deal with it like we did in other places.

To add, a couple places provided an old snow blower and a giant bag of salt. That was good, too.

Another thing we have encountered is that gas or water might be included in a MF. Side by side townhouses and larger multis often have only one meter so the landlord will average the bills over time and tie it into the rent.

I’ve seen water bills passed on to the homeowner if unpaid by the tenant and actually had a landlord try to take it out of my deposit before I ever received the final bill. So if that’s the case in your area, you’ll need a process in place for verifying if it’s paid before returning their deposit, but still fitting into the law regarding the deposit return timeline.

@Lee Stephens  make sure to account for the following expenses in your calculations:

1) Mortgage

2) Mortgage insurance (PMI or MIP) or FHA Risk base

3) Property Taxes

4) City Taxes

5) HOA (Home Owner's Association) Dues and Fees and Assessments

6) Insurance

 a) Property Hazard Insurance (0.3-0.45%)

 b) Flood Insurance

 c) Earthquake Insurance

 d) Umbrella Insurance

7) Vacancy Rate (usually 8% - the equivalent to one month a year, or 5-6% if multifamily and/or if experienced, if not use 8%)

8) Utilities (you’ll have these if your tenant is not covering them and/or during vacancy)

 a) Water § Sewer § Garbage

 b) Electricity

 c) Natural Gas

 d) Propane

9) General Maintenance (usually 5%)

 a) Upkeep § Landscaping

 b) Snow removal

 c) Repairs

 d) New Appliances

 e) Make ready

10) Capital Expenditures (usually 5%, higher is the property is old and obsolete, less if fully rehabbed and all mechanicals and roof are new)

11) Property Management (8%, even if you self manage, your time still has value and there might be a time when you'll want to be completely hands off or you'll not be able to do it, vacation, retirement, etc.), including...

 a) Office Supplies (e.g. stamps, envelopes)

 b) Software

 c) Gas/Mileage

 d) Advertising + Payroll

 e) Concessions

 f) Lease loss

 g) Lease renewal fees

12) Lawyer/Law office/Legal fees

13) Accounting/Bookkeeping/CPA/Tax preparer/Tax advisor

I own duplexes with all utilities on their own meter. PITI is all that I pay for, plus maintenance of course. Full utilities, cable, internet, trash, snow removal, lawn service. All on the tenants. And my lease states if the city fines me for lack of snow removal or grass mowing, then the tenant must pay me back immediately. Also, my city does not charge owner of property if tenant defaults on utilities. It is charged to whomever the account is in.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here