When to decide who pays for gas and electric..

11 Replies

Ive been running some numbers on some multi family deals and single families also. I was wondering, when do you guys decide if you should pay for the gas and electric bills when trying to adjust for a higher cashflow? Is it soley based on the structure of the multi family (if each unit has its own meter or not) or are there other factors coming into play?

I obviously would rather have the tenants pay but, would that make my rental less attractive? Let me know what you guys think :)

Dee

If its separately metered the tenant pays. If not the landlord pays. Keep it simple. I see no reason to try and beat the system by charging a tenant $50 extra for a $30 electric bill. You will lose eventually. You dont want to pay utilities.

I always have the tenant pay. If I were considering a property where everything was on one meter, I would see if the units could be remetered (Is that a word?) so the tenants could be billed separately. When the tenant doesn't have to pay, they tend to not conserve the resource and bills are higher.

What is standard practice in your area? Do most landlords have the tenant pay, or do most landlords pay? I would assume most tenants pay it themselves but would prefer to have it paid for them. Could you bump up the rent if you pay the utilities?

Brandon Turner was talking about a new trend in his area where some tenants don't make the utility payments, but still pay rent. The city is forcing owners to keep the utilities in their name to ensure payment. He then has to bill his tenant. I can see this moving to a more widespread policy.

Mindy Jensen, Real Estate Agent in CO (#FA100049656)

I had a property in Pennsylvania. I sold it after I found out they keep the water in the owners name but send the bill  to the renter or to the house address.   I do not know if it is every city or just the one I had a property in.   I had a hard time getting them to send me the  bill as their excuse was they only send out one bill and they wanted me to pay if I wanted to have a bill sent to me but I had to ask the city to send me a copy of the bill with a special concession. They then used  this as an excuse to go into the house and check for plumbing codes and ect as well as enforcement of taxes and anything else they can think of to use  it for.

I am actually surprised that all cities do not require the owner to be, somehow,  responsible for the utilities and there by force them to be unpaid bill collectors for the city.

if theres a meter for that unit, then tenant pays.

if the meter has common areas hooked to it, then owner has to pay lest tenant is paying for other's enjoyment. 

oftentimes theres just 1 gas hot water heater for the fourplex or whatever - in which has the owner is likely going to pay for gas hot water although the cooking and or heating gas can be on separate meters but most of the times i just see 1 gas hot water tank and separate gas meters for each unit.

interesting, thank you all for your answers. But that brings me to another question! What about water and other utilities? Is it all down to the factors you have all described? Even trash and sewer. 

Answers would be appreciated.

For me, it depends on the market. Have you done a Market Survey of the area rentals to see what they include? Most all of them where I do business would consider utilities up to the renter. Unless it was very low income...

Hope that helps!

Originally posted by @Evans Marcie :

For me, it depends on the market. Have you done a Market Survey of the area rentals to see what they include? Most all of them where I do business would consider utilities up to the renter. Unless it was very low income...

Hope that helps!

How would you go about doing that kind of survey? Calling some management firms?

Many municipalities in PA won't let tenants have water and sewer in their name.  It has to stay in the owners name.  Actually is a good thing because if the tenant is not paying water and sewer the municipality can put a lien on the property.  I pay it then bill back to tenant.

Ess, we have tenants pay for electricity and have not had any issues.  Its up to our local utility district to chase any deadbeats.  The water/sewer/garbage, however, is a different story.  Unpaid amounts become liens against our properties.  Our first big learning was when the city let a tenant rack up 3 months of unpaid bills and we had to pay before we moved in a new tenant.  Now, we advertise the units with the cost before utilities.  Ont he application we ask them to choose between including the WSG in rent or paying a higher deposit to us to cover the grace extended (plus a deposit to the utility company).  They normally choose to pay with with rent, which is what we prefer.

It's easy to do a Market survey by looking int he paper and in Craigslist.  If the ad doesn't state who pays utilities, you can call and ask.

Originally posted by @Michele Fischer :

Ess, we have tenants pay for electricity and have not had any issues.  Its up to our local utility district to chase any deadbeats.  The water/sewer/garbage, however, is a different story.  Unpaid amounts become liens against our properties.  Our first big learning was when the city let a tenant rack up 3 months of unpaid bills and we had to pay before we moved in a new tenant.  Now, we advertise the units with the cost before utilities.  Ont he application we ask them to choose between including the WSG in rent or paying a higher deposit to us to cover the grace extended (plus a deposit to the utility company).  They normally choose to pay with with rent, which is what we prefer.

It's easy to do a Market survey by looking int he paper and in Craigslist.  If the ad doesn't state who pays utilities, you can call and ask.

Thanks for your input! Very helpful.

What if I am purchasing a 3 unit property and then owner previously paid for these bills? Would that indicate I have too also or can I creatively move these expenses around? Also, would it cost a ton to create three switches for all three units?

When I collect rent, I know how much of it is base rent, pet premium, utility, etc, and I record it that way so I easily know if I am breaking even on those extra components.  Step 1 is to split out the components of rent, fairly.  You can look at how much the costs have been trending (from the seller or utility company) or what the market rate for the utilities are (rentals advertised with included vs. not included).

If you want to transition away from paying them, you need them to be on separate meters.  There are likely plenty of other forum posts to understand those costs and issues, I haven't done it.

Then you would include as taking over the tenants (assuming you are month to month rather than a lease) that they will pay you only the base rent and they will get accounts set up to direct pay their utilities, and show them it is cost neutral to them.  But be aware they they could be forced to pay deposits to the utility companies, so it may not truly be cost neutral.  Be sure to add a clause that there is a penalty of they don't have them switched over by a certain date.

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