Best possible way to charge tenants for utilities?

Question

Hello there, my name is patrick. I recently purchased two properties at the same time. Started to get rent money, but noticed that utilities for both properties were coming in pretty high. I'm currently paying for all utilities, averaging between 335-400 depending on the month. I was thinking about increasing rent, i am based out of Santa Ana, California. I know this year has statewide rent control. So, should i increase the rent and charge additional for utilities? Have a fixed rate per month? Because of rent control i can't increase rent by a lot to come out even. Please help, happy to hear all suggestions . Brand new to being a landlord.

Joe Homs · Answer

@PATRICK NAJARRO the first thing you need to review is your current contract. Did you inherit that from the previous owner (you will need to honor that) or did you create it yourself? Unfortunately you will also need to honor that one as well, unless you are on month to month? Rent increases in California are 5% plus cost of living around 3%. That's not your big issue. It's your contracts. Look there first to see if you can even include that in a new contract with a rent increase.

Good investing...

Steve Morris · Answer

"should I increase the rent and charge additional for utilities?"

I'd say submeter and bill back.

1) If you hire a 3rd party for billing make sure they do collections

2) If you just want to put a flat rate on water (for example) realize that guy uses no water pays as much as the guy using water 24/7, idea is to use less water

3) Have a 20-unit and 2 guys used 35% of the water, helps find out.

Ethan Jacobsen · Answer

You could do the submeter option and keep track of that yourself. That would just take time for you to record usage on a specific date each month. You could also establish a Ratio Utility Billing system which basically says that each occupant has to pay their "fair" share. So if unit A has 1 tenant, unit B has 3 tenants, and unit C has 2 tenants, you would take the total utility bill and divide it into 6 (for the amount of tenants). Unit A would pay 1/6 of the bill, unit B would pay 3/6 or half of the bill, and unit C would pay 2/6 or a third of the bill. Sometimes we have to do that with our properties. It's not a great option since the neighbor in unit A could potentially be using tons of water and not paying much for it. As for a fixed price, sometimes you'll come out on top and sometimes you won't. I've found that when utilities are "included with rent", tenants tend to use the utilities pretty freely.

With all that said, @Joe Homs has a point. First take a look at your leases. You might not be able to make any changes right now, but it's always good to plan ahead. Hopefully you'll be able to get it figured out. Good luck!

PATRICK NAJARRO · Answer

Yes multiunit, one has 3 units and other has 4 units.

Aaron K. · Answer

I'm going to assume these are multiunit properties, if not you'd just make the utilities the tenant's responsibility.  you can probably submeter electricity and water and then keep track of the billing.  Gas will be more difficult and perhaps something you have to handle still.  $400 per month is pretty high though.

Best possible way to charge tenants for utilities?

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