If you provide heat do you build it into the rent or surcharge?

Question

I've always built the steam heat I provide into the rent of the property I've owned since 2012, but the way people search ads by price ceilings is killing me. They might never see my ad and rent a place that would actually end up costing them more! So I'm thinking of setting a fixed monthly surcharge for heat and hot water, plus a charge for the 'free' laundry I provide. That way I can compete in the algorithms with apartments that do not provide heat or hot water. Thoughts?

Johann Jells · Answer

Thanks all. I'd like to make the numbers as accurate as possible, but unfortunately my utility here can't break out the gas from electric when asked for the average gas bill for a given apartment. I'm stuck just breaking up the average yearly bill by 3.5, 3 large units and a smaller one. Comes to $60/mo. I figure laundry at $50, $4 per load, 12 loads a month for a family of 3 or 4.

@JD Martin I want to just make it a steady surcharge so it's effectively rent, that's what the monthly automatic payment will be. This is really about getting people in the door to see a fantastic apartment. But pricing is so dynamic these days it's hard to know what's right. I just rented a unit to a couple that had their ceiling $10 over my asking. But had I had this setup in place I suspect they still would have rented it, but with me getting $110 more per month.

Theresa Harris · Answer

You are correct in your thinking.  Most people see the price of the rent and don't look at what is included.  True story a friend told me.  They were renting a room in an apartment they owned.  They wanted $600 (can't remember the exact number) which included everything.  The person looking said that was too much, but agreed to pay $500 plus $100 in utilities each month.

Nathan Gesner · Answer

I think you are correct. When you advertise a higher price, people tend to overlook the cost of the utility that's included in the price. If you list it at $600 + utilities, then you can let them know that certain utilities are charged by the utility provider and heat is provided by you. Easy peasy.

JD Martin · Answer

I don't see a problem with it; VRBO/AirBnB advertisers do it all the time. You'll see a "$100/night" quote on there but by the time you parse out the owner's fees, pool heat, etc it comes out to $150/night. As long as you are upfront with the potential tenants and include it in the lease seems fine to me. Some people will probably complain, but that's how it is.

If it were my building I would offer two approaches: cost averaging or in-season surcharge. Cost averaging, if you spend $100/month for 6 months providing heat, you add a $50/month surcharge to the rent. Or you just charge them $100/month more from October-March, as an example. Most sensible people will take the cost averaging, while the ones always living on the edge will opt for the higher in-season surcharge; that might help you make a decision between two tenants if you include it as a question on the application.