Utilities included worth the risk?
Member since 2018 · 62 posts · 37 votes
Utilities included worth the risk?
Most Popular Reply
Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes@Jorge Caceres how big is this property? I would definitely go with a utility cap. You aren't trying to nickel and dime people but just to curb abuse so it should be generous. The issue will be if you have a number of rooms and a single abuser. I have a long term rental where I had to put in a clause that I would fine for open windows in winter. That tenant is gone now but it is something I go over on occupancy as unacceptable.
28 Replies
- TX · Member since 2024 · 6 posts · 2 votes1y
Hey, that's a good question. I don't have experience renting in California, but if your competition includes it, I'd probably want to consider it too. If your place is cheaper but I have to worry about utilities that I even have to set up that could be as high as $1000 a month, that definitely factors into my decision.
- Member since 2018 · 62 posts · 37 votes1y
Quote from @Brian Austin:
Hey, that's a good question. I don't have experience renting in California, but if your competition includes it, I'd probably want to consider it too. If your cheaper but I have to worry about utilities that I have to also possibly set up that could be as high as $1000 a month, that definitely factors into my decision.
Thanks for your thoughts, Brian. It definitely seems like utilities need to be included in the rent for MTRs. A nurse on a six-month hospital assignment isn't going to want the hassle of setting up a utility account.
- 1yBonnie LowPro MemberLender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
Hi, Jorge - My MTRs are in California, too, and we have exceptionally high bills in the summer time especially for AC usage. You're definitely in a unique situation, but there are some SOPs that apply here. #1, know your guest avatar. If you're certain the type of renter you're going to get are traveling medical professionals, you know they're on short term contracts (typically 13 weeks). That alone makes it difficult to get the tenant to put utilities in their name. If you're dealing with relocations, you shouldn't have any problem getting the tenant to put the utilities in their name as these are typically longer contracts. If the former is your guest avatar, you really need to look at what others are doing in your area because if they include utilities with no cap and you don't, it will make your property much less desirable. However, if you seem similar listings in your area and they're requiring tenants put utilities in their name, then you should feel more comfortable doing so. You can also split the difference by looking at the historic energy usage for the property and setting that as a utility 'cap.' That amount is baked into the rent you charge. Anything above that is billed to the customer separately by you. Sometimes it can be difficult to collect and some landlords will keep any unpaid utilities out of the security deposit, though CA is one of the trickier states to do this in. I find that putting a utility cap in the lease agreement they sign and calling their attention to it really helps make them more aware that they'll have to pay for excess usage so, fortunately, I haven't had to actually bill anyone yet, but the language is there if I needed to.
- Member since 2018 · 62 posts · 37 votes1y
Hi Bonnie, thank you for your input. I'm hesitant to set a utility cap, as I worry that disclosing a specific amount (like $500) could deter potential tenants. I agree with you that calculating a reasonable average is the better strategy. Because I'll be responsible for the utility account, I'll be able to monitor daily usage and address any excessive consumption directly with the tenant. The lease agreement could include a clause stating that any excessive utility consumption would be brought to the tenant's attention, and define what is considered "excessive" somehow.
- 1yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
@Jorge Caceres how big is this property? I would definitely go with a utility cap. You aren't trying to nickel and dime people but just to curb abuse so it should be generous. The issue will be if you have a number of rooms and a single abuser. I have a long term rental where I had to put in a clause that I would fine for open windows in winter. That tenant is gone now but it is something I go over on occupancy as unacceptable.
- Investor · Dayton, OH · Member since 2023 · 14 posts · 13 votes1y
Our medium term lease covers utilities but includes a cap for electricity. Its generous and I don't think anyone would go over it with normal usage. If someone was over during a high consumption month I'd give then a notice/warning for the first month along with some energy consumption tips then tack it onto the rent.
- Member since 2018 · 62 posts · 37 votes1yHi Colleen, the property is a 2/1 and at this point I am only considering a single contract. After reading all of the replies, I think a cap is the way to go. Monitoring open windows isn't feasible in my case, but I can definitely monitor daily electricity usage online
Quote from @Colleen F.:
@Jorge Caceres how big is this property? I would definitely go with a utility cap. You aren't trying to nickel and dime people but just to curb abuse so it should be generous. The issue will be if you have a number of rooms and a single abuser. I have a long term rental where I had to put in a clause that I would fine for open windows in winter. That tenant is gone now but it is something I go over on occupancy as unacceptable.
- Member since 2018 · 62 posts · 37 votes1y
Quote from @Chris Seidler:
Our medium term lease covers utilities but includes a cap for electricity. Its generous and I don't think anyone would go over it with normal usage. If someone was over during a high consumption month I'd give then a notice/warning for the first month along with some energy consumption tips then tack it onto the rent.
Thank you Chris for the reply. How did you come up with the cap amount? average +/- a percent?
- 1yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
@Jorge Caceres I don't normally monitor for open windows but had another tenant mention it after which I did. (the tenant is question was also leaving a hall window in apartments open in my case). I added the possibility of fines for this after that incident. This is in RI so letting the heat out is not just a big cost but a risk. You also might want to consider remote thermostats in case one tenant wants freezing AC and the others don't. That can be an issue with shared spaces.
- Investor · Dayton, OH · Member since 2023 · 14 posts · 13 votes1y
Quote from @Jorge Caceres:
Quote from @Chris Seidler:
Our medium term lease covers utilities but includes a cap for electricity. Its generous and I don't think anyone would go over it with normal usage. If someone was over during a high consumption month I'd give then a notice/warning for the first month along with some energy consumption tips then tack it onto the rent.
Thank you Chris for the reply. How did you come up with the cap amount? average +/- a percent?
This property is in the mountains and has electric heat, so the main bill comes in the winter when the heat is running.
We took the highest month of "normal" winter usage we had records on -- people in the house, heat running at a reasonable temperature, washer/dryer running, etc. We then added about 50%, rounding up to a round number. That's our cap.
The only time we have seen an electric bill higher is when contractors were in there working and using a ton of electricity for industrial heaters for a month. I think you'd really have to work hard by mining bitcoin, leave the windows open in winter with heat on full blast, or something similarly unusual to exceed the cap.
- Lender · TX · Member since 2024 · 308 posts · 196 votes1y
Hi Jorge! You could increase the rent by a fixed amount to account for utilities, but a more flexible strategy might be to set a utility cap (e.g., $500/month) included in the rent and require tenants to pay for any overages. This approach helps manage costs while providing predictability for tenants.
- 1yAllen DuanPro MemberProperty Manager · Los Angeles, CA · Member since 2022 · 590 posts · 463 votes
Ignoring the numbers for a second, let's think of the customer's (tenant's) point of view. No MTR tenant wants to open an utilities account in their name for a few months. It's expected and common for MTRs to have utilities included. View it as a business expense like you do the mortgage.
Now for the numbers part, since all MTRs include utilities, the market MTR rates should have that baked in already. In other words, all the other MTR hosts are dealing with the same expense.
To control this expense, I always recommend an utility cap where tenants are charged for any usage over an established dollar amount.
- 1yMiguel Del MazoPro MemberNortheast Georgia · Member since 2023 · 140 posts · 170 votes
Quote from @Allen Duan:
Ignoring the numbers for a second, let's think of the customer's (tenant's) point of view. No MTR tenant wants to open an utilities account in their name for a few months. It's expected and common for MTRs to have utilities included. View it as a business expense like you do the mortgage.
Now for the numbers part, since all MTRs include utilities, the market MTR rates should have that baked in already. In other words, all the other MTR hosts are dealing with the same expense.
To control this expense, I always recommend an utility cap where tenants are charged for any usage over an established dollar amount.
It's a great idea to think of everything in MTR from the somewhat unusual perspective of the traveler. Some amenities are crucial and obvious (pots and pans, plates, linens, good Wi-Fi), some are unnecessary and obviously so (personal movie theater with arcade game room), but the trickier amenities lie in the 2 middle zones.
What are some necessary amenities that you might overlook? This may depend on your market, of course, but in general, if all of the nearby MTRs have it, you are going to want it for your units, as well. Utilities fall into this category. I support (and use) a utility-cost cap amendment in our leases to ward off those who might want to mine cryptocurrency or operate an indoor greenhouse, but the vast majority of MTR have utilities included and the vast majority of travelers expect that they are. We have talked about parking availabilty in another thread, and it is an often overlooked amenity whose lack can torpedo an MTR's success. I think we all know about the importance of black out curtains and a comfortable bed and linens, but after buying the wrong product, I have learned how important a good vacuum is to many travelers. One of the great things about having multiple residents per property per year is that you can iterate faster than with an LTR. You also tend to get more frequent and better feedback than with an STR, if you treat your residents well.
The last quadrant, unnecessary but not obviously so, is usually as a result of either converting an STR to an MTR or from remodeling above the standard needed. A foosball table, a "Log Cabin (or other trendy) theme", or 3-jet shower probably have a better place in an STR than an MTR. Sure, they might be appreciated by the traveler, but they certainly wouldn't be missed. The quadrant can also easily open the landlord to some headaches. Items or features in this quadrant that aren't there won't be missed, but if they are there, they will be expected to operate perfectly. The classic example of this is "a printer". It might seem like a kindness to provide a printer to a traveling professional, but until they invent one that works on every device, every time; that doesn't need paper at two in the morning; and has cheap toner that refills itself, we will pass on that amenity.
I am sure there are other examples for all 4 quadrants, but like @Allen Duan wrote the important thing is to look at amentities through the lens of the end user (with an eye towards the "competition").
- Member since 2018 · 62 posts · 37 votes1y
Quote from @Julia Lyrberg:
Hi Jorge! You could increase the rent by a fixed amount to account for utilities, but a more flexible strategy might be to set a utility cap (e.g., $500/month) included in the rent and require tenants to pay for any overages. This approach helps manage costs while providing predictability for tenants.
Thanks @Julia Lyrberg! I'm going to try that. I'm thinking of telling tenants there's a $500 utility charge included in the rent as a convenience—so they don't have to deal with setting up accounts. They'll be responsible for any overages, and I'll refund any credit at the end of the lease.
- Member since 2018 · 62 posts · 37 votes1y
Quote from @Allen Duan:
Ignoring the numbers for a second, let's think of the customer's (tenant's) point of view. No MTR tenant wants to open an utilities account in their name for a few months. It's expected and common for MTRs to have utilities included. View it as a business expense like you do the mortgage.
Now for the numbers part, since all MTRs include utilities, the market MTR rates should have that baked in already. In other words, all the other MTR hosts are dealing with the same expense.
To control this expense, I always recommend an utility cap where tenants are charged for any usage over an established dollar amount.
@Allen Duan I also considered the tenant's perspective. If they're paying for overages, they'll reasonably expect a refund for any unused portion of the utility allowance. To address this, the lease will clearly state that any credit will be returned at the end of the lease term. This should incentivize them to conserve energy.
- Member since 2018 · 62 posts · 37 votes1y
Quote from @Chris Seidler:
Quote from @Jorge Caceres:
Quote from @Chris Seidler:
Our medium term lease covers utilities but includes a cap for electricity. Its generous and I don't think anyone would go over it with normal usage. If someone was over during a high consumption month I'd give then a notice/warning for the first month along with some energy consumption tips then tack it onto the rent.
Thank you Chris for the reply. How did you come up with the cap amount? average +/- a percent?
This property is in the mountains and has electric heat, so the main bill comes in the winter when the heat is running.
We took the highest month of "normal" winter usage we had records on -- people in the house, heat running at a reasonable temperature, washer/dryer running, etc. We then added about 50%, rounding up to a round number. That's our cap.
The only time we have seen an electric bill higher is when contractors were in there working and using a ton of electricity for industrial heaters for a month. I think you'd really have to work hard by mining bitcoin, leave the windows open in winter with heat on full blast, or something similarly unusual to exceed the cap.
Thanks @Chris Seidler for that info
- 1yAllen DuanPro MemberProperty Manager · Los Angeles, CA · Member since 2022 · 590 posts · 463 votesYou can definitely do it that way, but you don't have to. It can be worded either way in the lease. I've never had a tenant ask about a credit for not using the entire amount.
Quote from @Jorge Caceres:
Quote from @Allen Duan:
Ignoring the numbers for a second, let's think of the customer's (tenant's) point of view. No MTR tenant wants to open an utilities account in their name for a few months. It's expected and common for MTRs to have utilities included. View it as a business expense like you do the mortgage.
Now for the numbers part, since all MTRs include utilities, the market MTR rates should have that baked in already. In other words, all the other MTR hosts are dealing with the same expense.
To control this expense, I always recommend an utility cap where tenants are charged for any usage over an established dollar amount.
@Allen Duan I also considered the tenant's perspective. If they're paying for overages, they'll reasonably expect a refund for any unused portion of the utility allowance. To address this, the lease will clearly state that any credit will be returned at the end of the lease term. This should incentivize them to conserve energy.
- 1yRene HosmanPro MemberRental Property Investor · Denver, CO · Member since 2024 · 583 posts · 653 votes
Quote from @Jorge Caceres:
Hi Bonnie, thank you for your input. I'm hesitant to set a utility cap, as I worry that disclosing a specific amount (like $500) could deter potential tenants. I agree with you that calculating a reasonable average is the better strategy. Because I'll be responsible for the utility account, I'll be able to monitor daily usage and address any excessive consumption directly with the tenant. The lease agreement could include a clause stating that any excessive utility consumption would be brought to the tenant's attention, and define what is considered "excessive" somehow.
I have two MTRs near hospitals (in Denver) and I include utilities with a utility cap, I've NEVER had anyone decline the rental because of this. I put on the listing that utlities are included and then the lease states that the utilities up to $X are included and any overage will be billed to the tenant. I also state that the tenant has the right to request to see the utility bill and I will provide the most recent bills within 1 week in case there are any questions about me overbilling them. No one has ever even requested to see the bill but I have it there so they can feel better.
They may have a question and ask what the average utility is and I'm very clear that it depends on use but I would always have a cap even if it's 1k to protect yourself if someone likes to live like they're in Antartica during the summertime :)
- 1yAlan AsriantsBusiness MemberReal Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
$1000/m for heating costs? are you sure? I would get that looked at. But again im not from cali
Alan Asriants - New Century Real Estate 590 Reviews - Investor · TX/OK · Member since 2021 · 4 posts · 2 votes1y
@Allen Duan Has a great point that I fully agree with (look at from tenant's perspective). I cannot fathom having a MTR that required the family we are hosting to setup their own utilities.
- Member since 2018 · 62 posts · 37 votes1y
Quote from @Patrick Paige:
@Allen Duan Has a great point that I fully agree with (look at from tenant's perspective). I cannot fathom having a MTR that required the family we are hosting to setup their own utilities.
Thanks @Patrick Paige, all good points. Appreciate your input.
- Member since 2018 · 62 posts · 37 votes1y
Quote from @Alan Asriants:
$1000/m for heating costs? are you sure? I would get that looked at. But again im not from cali
Sadly that is a very real number in California @Alan Asriants. Maybe for a newer construction is not but older homes (<1970), it is real. Winter's are cold and summers are hot in northern Cali.
- 1yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
@Jorge Caceres Is this with electric baseboard heaters or heat pump/minisplits. We did get much lower costs when we changed to minisplits but the initial cost is high.
- 1yAlecia LovelessPro MemberMember since 2019 · 3k+ posts · 2k+ votes
@Jorge Caceres When we have to include heat in our rent we just raise the price accordingly to the max comparable amount that other similar units are getting.
I’m not sure you can reasonably expect that you are going to recoup 70%-100% of the heat/AC costs. It’s just the nature of the beast.
With MTR you are probably just going to be stuck.
With my LTRs I have been switching to all tenant paid utilities after my first winter where I discovered the majority of my tenants were setting the heat at 78 (which is unreasonable in Northern New Hampshire) and leaving their windows open in -20 degree weather.
Best case scenario for you maybe do a “utility allowance “.
- Member since 2018 · 62 posts · 37 votes1y
Quote from @Alecia Loveless:
@Jorge Caceres When we have to include heat in our rent we just raise the price accordingly to the max comparable amount that other similar units are getting.
I’m not sure you can reasonably expect that you are going to recoup 70%-100% of the heat/AC costs. It’s just the nature of the beast.
With MTR you are probably just going to be stuck.
With my LTRs I have been switching to all tenant paid utilities after my first winter where I discovered the majority of my tenants were setting the heat at 78 (which is unreasonable in Northern New Hampshire) and leaving their windows open in -20 degree weather.
Best case scenario for you maybe do a “utility allowance “.
@Alecia Loveless Thanks for your input. I do the same for my LTRs, tenants have to get their own utility accounts and they are fully responsible. This will be my first MTR.
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