How does one know who will pay for utilities?

Question

I’m just starting my real estate journey and I have this burning question that I can’t figure out.

How do you know or decide whether you or the tenant will pay the utilities (water/sewage, electricity, gas, garbage)? Does each landlord decide independently depending on convenience or cash flow, or are you supposed to follow what everyone else does in your market? Or maybe some other factor that I haven’t thought of?

Theresa Harris · Answer

Anything where if the tenant fails to pay, you are stuck with the bill....you pay and charge the tenant (ie get reimbursed). Anything where the tenant fails to pay, it goes on their record....they pay directly. Often water is tied to the homeowner, things like electricity is with the occupant.

You don't want to include utilities in the rent as the tenants typically don't think/care about usage resulting in high water bills as they aren't paying for extras.

Brandon Rush · Answer

Hey Nicholas,

Generally, you want to push as much off to the tenant as possible but some things as you mentioned are market specific. If you are working with an agent they should be able to help you in figuring this out for certain markets. If you are looking at 2-3 markets it should be relatively easy to find out who pays for what. Some recommendations I have are:

* Look at the details in the current properties for sale. Many will state what utilities are paid by the tenants* If you are working with an agent, ask that they find out for you. They can simply ask the listing agent if they are not sure* Network with other investors in those markets and ask them* Contact the town to see what services are included in the taxes (ex. Garbage pickup)

After running this exercise 2 times or so, you will understand how that market operates and figure it out.

Hope that helps. Good luck!

Michele Fischer · Answer

Following local market will make it easier for you to set market rent and market the units.

Agree with all the advice you are getting, just wanted to throw in some personal experience.

In my market water sewer garbage is utimately owner responsibility and must be paid in full before the account transfers to a new tenant.  It is a mixed bag whether it is included in rent or not, but slightly more landlords have the tenants hold their own WSG accounts.

We started with the tenants paying.  Since we serve low income, folks can only get subsidies if the utilities are in their name.  The utility company would copy us on invoices once they became overdue, but would let utilities go months on end with no payment.

After getting stuck with several bills that equated to 5 months of utilities, we changed our policy and included the WSG in rent.  We felt like we had more control over non-payment.  We offered a rebate to tenants if they used less than average, and one tenant always got annual refunds from us for conserving water.  If tenants used more than average we took that into account with annual rent reviews/adjustments.

Then COVID hit.  All but (the same one water conserving) tenant almost doubled their water usage, some more than doubled it, and it has stayed that way for over a year.  With freezes on raising rent through the pandemic it has impacted our cash flow significantly, especially with the double whammy of some tenants not paying rent at all and doubling their utility bills.  New tenants now have their own accounts again.

There are pros and cons to both methods for sure.

Scott M. · Answer

Good to see what others are doing in your area, some basic research on that will give you an idea what the local market is doing.  But @Theresa Harris is spot on.  If you are ultimately responsible you need to either pay it and have the tenant pay you back or have really good systems in place to track this stuff.  Blink of an eye you can be behind a seriously big 8 ball.  Locally for us it is almost unwritten rule that for single family homes tenants pay everything.  Apartments are mixed.

How does one know who will pay for utilities?

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