Rental Property Utilities Breakdown

General Landlording & Rental Properties
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Rental Property Utilities Breakdown

Omer Sultan
New York, NY · Member since 2019 · 15 posts · 2 votes

Hello BiggerPockets Community!

I'm trying to figure out the best way to handle my utility expenses on a rental property. I haven't closed on a property yet (I actually haven't even made an offer yet *sweat-smile emoji* <---look that up on Google if you don't know what that is because it's pretty spot-on), but I've got my sights set on purchasing some student housing in a small college town in Upstate New York. Most of the properties I've been looking at are single-family homes that were turned into multi-family homes to accommodate a larger number of occupants. The way I see it, there are 3 options when it comes to billing tenants for utilities:

Option A) There are separate utility meters and the tenants are responsible for paying their own utilities. Simple.

Option B) There aren't separate utility meters, so you charge each tenant a predetermined monthly utility fee. For example: $100 per month per tenant regardless of their consumption (which could end up being higher or lower).

Option C) There aren't separate utility meters, so you charge the tenants a variable monthly utility fee based on their consumption. For example: I receive a total of $1,000 in utility bills on a given month for a single property containing 8 tenants. Each tenant is therefore responsible for their rent + an additional $125 for that month ($1,000 / 8 = $125).

Are there any flaws with any of these options that I'm overlooking? Are there any other options besides these three?

Thanks in advance BiggerPockets Community!

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Stephanie JacobsonBusiness Member
Real Estate Agent · Ithaca, NY · Member since 2016 · 427 posts · 323 votes
6y

Hello again Omer!

Unfortunately in Binghamton most landlords for student housing include utilities whether it's separately metered or not. In a typical West Side rental, you'll get $450ish per bedroom but will need to include heat, electric, water and wifi.

The way many of my investors avoid finding themselves in a bad situation is that they put a cap on utility bills in the lease. One of them says something to the effect of "Each person is allotted $35/month for utilities for a total of $175 for five people. Any amount billed to the landlord beyond this number will be added to your rent." So if he gets a $200 bill across his utilities, he adds $25 to their rent that month and sends them a receipt stating what the extra charge was for.

The students here expect that sort of arrangement, but it is harder to rent to students if utilities are extra.

Call NYSEG on a building you're interested in to find out what the average bills have been over the past year.

Hope this helps!

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  • Kathleen Hendricks
    Broker Associate/Investor · Carmel Valley, CA · Member since 2014 · 45 posts · 9 votes
    6y

    I use a version of C.  Called RUBS (Ratio Utility Billing System) - it takes into account # of tenants in each unit (or one can do it based on sq. footage) to make it more fare.  

    2Reply
  • Omer Sultan
    OP
    New York, NY · Member since 2019 · 15 posts · 2 votes
    6y

    @Kathleen Hendricks Love it! Thank you for your response!

    How would you structure your invoices? Rents would be due on the 1st of every month and utilities would be due on the 15th? I'm assuming there'd be some lag time on the utility bill...

    0Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    6y

    A set payment per month is just higher rent utilities included. If you wanted to get complicated you could set up a utilities account for $100 a month and then offer a rebate every 6 months if consumption is lower. 

    You could just have them sign separate leases and they work out how they split the utilities but that is more for a 3-4 person house. I don't like this last one but it has worked out ok for my son as a tenant. It was a bit concerning to me at the start. 

    If you have 8 tenants probably just easier to include it,  I would not do a variable amount but a fixed amount with rebate might create an incentive for decreased use, at least in some tenants. 

    1Reply
  • Nick N.
    IA · Member since 2019 · 33 posts · 29 votes
    6y

    There are also systems you install after the meter that can monitor the supply lines to each apartment and send you reports so you can accurately bill each one accordingly. The Sense Home Energy Monitor is one that connects to each circuit in you main panel so you can tell how many KWh each one is using. Once you have everything labeled appropriately it should be easy to bill back depending on how well the units are wired. For water, you could look into sub-metering for the water also using something similar to this https://submetersolutions.com/water-meters/ so long as the units are piped in a way that you can separate those main supply lines. Just another option you could look into to get the most accurate numbers possible without splitting out the main meters into the house.

    1Reply
  • Kathleen Hendricks
    Broker Associate/Investor · Carmel Valley, CA · Member since 2014 · 45 posts · 9 votes
    6y

    I try to get the RUBS billing out by the 10th and it's due within 10 days.  

    1Reply
  • Omer Sultan
    OP
    New York, NY · Member since 2019 · 15 posts · 2 votes
    6y

    @Colleen F., @Nick N., @Kathleen Hendricks

    Awesome, awesome, awesome! Really valuable insight here. Thank you all so much!

    0Reply
  • Stephanie JacobsonBusiness Member
    Real Estate Agent · Ithaca, NY · Member since 2016 · 427 posts · 323 votes
    6y

    Hello again Omer!

    Unfortunately in Binghamton most landlords for student housing include utilities whether it's separately metered or not. In a typical West Side rental, you'll get $450ish per bedroom but will need to include heat, electric, water and wifi.

    The way many of my investors avoid finding themselves in a bad situation is that they put a cap on utility bills in the lease. One of them says something to the effect of "Each person is allotted $35/month for utilities for a total of $175 for five people. Any amount billed to the landlord beyond this number will be added to your rent." So if he gets a $200 bill across his utilities, he adds $25 to their rent that month and sends them a receipt stating what the extra charge was for.

    The students here expect that sort of arrangement, but it is harder to rent to students if utilities are extra.

    Call NYSEG on a building you're interested in to find out what the average bills have been over the past year.

    Hope this helps!

    4Reply
  • Nick Rutkowski
    Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Omer Sultan Go with option A if applicable. If not, go with everyone else and choose option C - it makes better sense than B. Anything to keep your life simple with your first investment would be your best option especially when you're dealing with college students who have little life experience and accountability. 

    1Reply
  • Omer Sultan
    OP
    New York, NY · Member since 2019 · 15 posts · 2 votes
    6y

    @Nick Rutkowski I appreciate your input! Thank you!

    0Reply
  • Tim S.
    Investor · California, CA · Member since 2016 · 367 posts · 375 votes
    6y

    It depends how your property is set up, and what's typical for the market. I have a 6br SFR, there is one meter for the house, they are responsible for paying the utilities directly to the providers. It's up to them how they split it up, I think they just divide it up evenly.

    If "utilities included" is normal for your market, then you should do the same.  Set it up so they are incentivized to be frugal with the energy.  If they get unlimited energy for a flat price, they will abuse it and run up huge bills.  

    2Reply
  • Omer Sultan
    OP
    New York, NY · Member since 2019 · 15 posts · 2 votes
    6y

    @Tim S. You bring up a good point. Instituting a utility cap will definitely be a must. I guess it just boils down to figuring out what that utility cap will be.

    0Reply
  • Ronald Starusnak
    Property Manager · Syracuse, NY · Member since 2016 · 601 posts · 384 votes
    6y
    Originally posted by @Stephanie Jacobson:

    Hello again Omer!

    Unfortunately in Binghamton most landlords for student housing include utilities whether it's separately metered or not. In a typical West Side rental, you'll get $450ish per bedroom but will need to include heat, electric, water and wifi.

    The way many of my investors avoid finding themselves in a bad situation is that they put a cap on utility bills in the lease. One of them says something to the effect of "Each person is allotted $35/month for utilities for a total of $175 for five people. Any amount billed to the landlord beyond this number will be added to your rent." So if he gets a $200 bill across his utilities, he adds $25 to their rent that month and sends them a receipt stating what the extra charge was for.

    The students here expect that sort of arrangement, but it is harder to rent to students if utilities are extra.

    Call NYSEG on a building you're interested in to find out what the average bills have been over the past year.

    Hope this helps!

     That's common, it's called a RUBS system. Simple utility bill back. 

    1Reply
  • Stephanie JacobsonBusiness Member
    Real Estate Agent · Ithaca, NY · Member since 2016 · 427 posts · 323 votes
    6y

    @Ronald Starusnak right, but in the case of student housing where utilities are partially included RUBS doesn't quite work, especially where you have one 10-bedroom house, which is common. It's better to put a cap in addition to allocating responsibility for the bill.

    1Reply
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