When doing rental property calculators and writing a budget for monthly expenses there is the 50% rule that says expenses should be half of the monthly income, but is that true in all cases? Utilities can vary widely between different tenants especially if they aren't separately metered. What would be some rules of thumb or ways that other land lords deal with utility costs on residential multi family properties? This is a very important question to me due to the fact that income/expenses= the cash flow that can make or break a deal. Also this is just talking utilities. For maintenance/repairs I always use 5% vacancy, 8% repairs, 8% cap ex, and manage myself since its a house hack. I would love to hear about some ways that other landlords control their variable costs such as utilities and other expenses.
I wouldn't count utility costs as an expense because the tenants should be paying it. If they don't have separate meters then you pay the bill and recover the costs from the tenants. You can do that by:
- Receiving the bill, splitting it among the tenants, and billing them each month; or
- Calculating an average, dividing that among the tenants, and charging them the same amount every month; or
- Increasing their rent and including utilities
No matter the method, utilities should be paid by the individual using them and not the Landlord. There are exceptions but they should be rare and minimal. I would not count utility as an expense unless it's your responsibility, like the utility bill for a laundry room or lights in the common areas.
That was very helpful!
1st- Average out utilities for each unit.
2nd- Add them to the rent or bill separately.
Thats a great lesson to never pay for any of the utilities that are used by other people, even if they are included in the expenses on BiggerPockets calculator.
Thank you Nathan!