How to split utilities

Question

I have a single family home with a garage conversion. Both are 2bed 1 bath. Iam moving out and I am going to rent both units. I have not lived in the property while the other unit was occupied so I dont have any numbers to find the average so I'm looking for a good/fair way to split the utilities between both tenants. Anyone with a similar property please let me know how you are splitting things thanks.

Emily Di · Answer

@Mauricio SalomI always start by bedroom and then adjust from there. That could be:

- laundry

- # of bathrooms

- private yard with sprinklers

Some scenarios which I've never faced but you might want to think about

- highly uneven number of tenants not accounted for with bedrooms (I wouldn't normally base on people because that can fluctuate with tenant change)

- highly uneven square footage not accounted for with bedrooms and bathrooms

- a tenant that keeps a greenhouse, etc (I actually did have this when I first started in rentals and was paying water. I had no clue how much it was costing me until he moved out - (probably a good $100/month) You may want to write some restrictions about this into your lease, maybe washing the car and anything above the normal

One thing my friend does is add an extra that she pays to avoid complaints. So if it's to be divided 4 ways she actually divides 5 ways and she pays the extra 1/5 and tells them that's to cover anytime someone might have used a little more than normal so they don't feel like they have to pay for someone else's use.

If I can give you one tip it is to ensure your toilets are in fantastic shape before you rent out the unit. Most tenants have no clue about toilets and unless it's an outright issue, they don't want to bother the landlord with a running toilet. This is a BIG problem in San Diego because the city only bills you every 2 months so if the worst case scenario you might have a running toilet for 60-70 days before you see that bill and freak out. I had a $2000 water bill that I never was able to collect from the tenant. So that's why I've started moving tenants to water responsibility. Oh and the annual 6% increases in the water bill are painful.

Not sure if you San Diegans have noticed but they seem to increase the MFR more than the SFR. I ran numbers for my duplex the other day and the tenants would have saved $20 had they been billed on SFR rates. Admittedly, my hope is not only to encourage tenant water conservation, but also to encourage engagement with the lawmakers and governing bodies. I send the tenants every notice I get about water rate increases.

Dan H. · Answer

I think the most important thing is that you fully disclose the method used to calculate the utility charges prior to placing a tenant.  Second most important is to be as fair as you can be.  We have water split on 4 of our properties.  None have the same method and only one has a 50/50 split (in 50/50 case both units are exactly the same).   We have a 4/2 with a 3 (officially it has 2 BR but they use the spare room as a BR)/1 that we split 60/40.  We have a triplex where each are 2/2 but one has a much bigger yard (bigger than both the other units combined) that we have split 30/30/40.  We have a 3/1 and 2/1 that the 3/1 has a much bigger yard (the 2/1 only has pots) that is 65/35.

If they are clearly notified of the utility breakout at move-in, then they cannot really complain much as they knew what it was when they chose to move into the place.  They will still complain.  It is not unusual for tenants that split utilities to believe they are subsidizing the other tenant.  The thing about water is so much of the cost is hookup (size of line in) and sewer that if they were in a SFR paying the entire amount themselves, they would all be paying more than they end up paying sharing the meter.  We tell them that but we still hear occasional complaints.

We have one unit where we pay the water.  I do not recommend this but we have two units on a meter that has 8 tenants.  Our tenants cannot make much difference being only 25% of the tenants on the meter.  This means we pay if something happens like a tenant accidentally leaves the water on all weekend.  It also does not provide any tenant incentive to conserve water.  My final reason I do not like it is that you cannot really build the cost into the rent because tenants do not fully value how expensive the water is in San Diego.  If I were to attempt to charge ~$150 above market because that is the approximate cost of the water per unit then I will have a difficult time filling the unit.  I can get ~$50 above market for paying the water.  So my worse cash flow RE is the one where we pay the water (only in part due to us paying the water).

Fortunately we have no unit that we have to worry about splitting gas/electric utilities.  I am glad because there is enough grumbling about the water.  Water rates just keep going up.  It is not our fault but it is also not the tenant's fault.  So they grumble; I do not blame them for not liking the rates.  I share their pain because I pay the water on our own home (averages around $300/month) and on the 2 rental units (also averages around $300/month ($150/unit)).

Good luck

Ola Dantis · Answer

In one of our properties, what we did with the water bill was split it 60%/40%, the higher % was for a couple with a child and the other was just a couple with no kids.

You use this across the board for the other utilities based on the # of occupants.

It's the closest to fairness I guess.

Mauricio Salom · Answer

I was actually leaning towards dividing it up by people per unit. Thanks for the input

Jon A. · Answer

I wouldn't advise that personally but you can split it up by the square foot or by the bedroom or by the amount of people. You could also sub meter the garage conversion but I don't know much about that. But I know it can be done.

Mauricio Salom · Answer

I was thinking I would leave them in my name

Jon A. · Answer

Whose name will the utilities be in?

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