Should landlord or renter cover utilities?

17 Replies

Hoping to get some thoughts on landlord vs. renter paying utilities. I plan on not including utilities in rent, but want to get different perspectives on the topic. Thanks!

The tenant pays all utilities in my properties.  I think that is best from a landlord perspective: you have transferred your cost to the tenant who is the consumer.  It helps conservation too.

Tenants will prefer the landlord to pay the utilities as it often means unlimited usage, ideally if they don't pay more in rent.  That's a bit of a gamble for the landlord and it means you price your property higher which may draw less interest from someone browsing listings.  You can mitigate your risk by providing a utility allowance, but that means you have to follow-up with the tenant each month if they exceed your limit.

The only caveat I can think of is that some landlords have no choice if there is a duplex, for example, and common utilities.  The landlord is often stuck paying for them if they aren't separately metered.

Whenever possible, get utilities paid for by tenants.  When not possible, look at whether RUBS is possible to recover utility costs.  Some areas it is difficult due to comparable properties having some utilities included in rent.  Do your due diligence on what other rentals offer in your target area.

It's easier in Single families to have all utilities covered by tenants. In Pa for example, our single families all utilities and trash are paid  by the tenants. Here in NY where I have a 2 family, Heat and Hot-water are covered by me. In all essence you have to know your area, know what's the norm, and price accordingly. But if you can have all utilities paid for by tenants, it is much better for cash flow and accounting purposes. 

I only have two rentals but my tenants don't pay for utilities. The best thing I did during the remodeling was paying 5,000 for solar panels. I live in San Francisco Bay Area so a lot of sun year round plus energy star appliances. I was able to rent the properties for more money a month. The solar system cost 5,000 but from an equity stand point, the value increased by 20,000 because Californians love home energy improvements and are willing to pay for them when purchasing. The tenants pay high rental rates for energy saving rentals and the higher rent allows me to rent to a more polished family. Instead of paying 2,200 a month in rent for a 2/1, they pay 2,600 so all the utilities are covered.

The Benefits:

- I have a high end property portfolio (even though the houses are in up and coming areas) because "high end" means an energy star rated home, not so much on location as it should.

- I have all utilities paid for by the tenant and the tenants never have more than one bill a month

-I get a better sale price for Energy improvements if I sold it and I get a higher dollar amount on my apprasials if I refinance it. 

- The best part is the tax breaks, you not only write off all the energy credits, interest, and property taxes but you write off the utilities that you do pay for. 

If you're talking about SFH, tenants pay all the utilities.

An exception is likely going to be the cost of trash pickup which is often added onto your tax bill.

Gail

I would never consider investing in a property that the tenants did not pay/have the utilities in their own name. Tenants are the most irresponsible people on the planet when they do not pay the bills and heaven help the landlord paying utilities when the tenants take a dislike to them. I have heard of many landlords facing thousands in utility bills the last couple months of a bad tenants lease.

Imagine evicting a tenant with the utilities in the landlords name. Furnace or AC on full blast, all windows wide open, hot water tap running wide open for a month non stop etc.

No you do not ever want the utilities paid for by the landlord and when buying a multi it is essential each unit have separate utilities. If they are not divided do not invest otherwise thing will go great till they go terribly bad..

My current rental has a lot of green grass that needs to be watered, in addition to the entire house being covered with shrubs and flowers. 

How would one evaluate how much water the tenants pay? 

@Andre Lewis

The tenants should pay the utilities. It's usually difficult to bill them for water as properties aren't always sub-metered for each unit. However, you can build the water into the price of the rent. 

Having a tenant pay utilities gives them the incentive to conserve resources as they are paying for them. With all of the risk that already exists in real estate, I wouldn't add more by increasing expenses where they don't need to increased. 

Thanks all for your responses! consensus says tenant pays utilities!

Originally posted by @Thomas S. :

I would never consider investing in a property that the tenants did not pay/have the utilities in their own name.

For an SFR, absolutely! However, for common utilities in MFUs, like water and trash there's just no choice other than to not purchase and then miss out on the highly viable cash flow they are capable of producing.

Originally posted by @Owen D.:

Whenever possible, get utilities paid for by tenants.  When not possible, look at whether RUBS is possible to recover utility costs.  Some areas it is difficult due to comparable properties having some utilities included in rent.  Do your due diligence on what other rentals offer in your target area.

 Hi Owen, What does RUBS mean?  Thanks!

When you rent a car from Avis or Hertz , do they pay for the gasoline ?  Utilities are consumables .  Ye who consumes ....pays 

I suggest having the lawn service be considered similar to a utility and have the tenant pay for it.

Tenants don't want to mow lawns.  In my area, there are more lawns than workers to mow them so it's a scramble every spring to find a lawn service for the season.  

If the landlord has a mower / lawn service on tap and the tenant pays for the service, then the yard is not neglected.

@Sarah Ottesen , RUBS stands for "Ratio Utility Billing System".  It's a method of billing tenants back for shared utility costs.  Depending on your area, it can be an effective way to recover utility costs without the hassle and expense of installing separate gas meters, water meters, etc.

they pay utilities, i don't commingle that sector of living. they consume they pay. 

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