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Should You Include Utilities at Your Rental Property?

July 24th, 2015 garnerproperties
Utility Bill

Every home, whether your own or a rental property, invariably has utility service needs. For the typical home, there will be water and sewer, electricity and gas, with some locations also having additional services that may need to be accounted for. The question each rental property owner must ask is whether or not to include these costs in their rental rates or to work out a different arrangement.

Landlordology points out that there are three main schools of thought when it comes to utilities for rental properties. First, you can offer a whole package – all utilities included with the rent, and you take care of managing all those costs on the behalf of the tenant. Next, you can spin off rental property utilities and bill them separately to tenants as either a flat fee or a variable rate based on adjustments in usage. Last, you can require that the tenants assume any utilities in their own name directly.

There are many advantages and pitfalls to each option, so let’s take a look at the compelling arguments for each of these scenarios.

Natural Gas MeterAll Inclusive

An all-inclusive property rental gives tenants peace of mind knowing that all of their needs are covered each month as part of their rental payment. This allows tenants to plan their budgets accordingly, and ensures that they don’t have to worry about missing a payment date or dealing with connection or disconnection appointments to start new utility service. This also works smoothly for owners, as all bills go directly to the manager without having to worry about unpaid gaps between tenants, and there will never be a case where the home is left in an uninhabitable condition due bill payment lapses.

However, the other side of the coin is that the owner loses some of their ability to manage usage versus cost. For example, if tenants prefer to keep their thermostat at a higher level or have a large number of appliances and electronics running in the home, the gas or electric bill may be much higher than was originally budgeted when the rental rate was determined. This can end up leading to higher costs, and even potentially a loss from your rental.

One last consideration is that by including utilities, you may need to smartly advertise your property to show the value of included services. Some home and apartment searchers may only see the rental price and not read through to find that utility costs are included, meaning that they won’t need to factor any additional costs into their budget. Included utilities may not always be obvious when advertised on many of the popular search sites as well, which may deter some potential renters unnecessarily.

Electricity MeterSeparate Fees

Planning to have utilities in your name but charging the tenants for them separately is another option for property owners. This can be either a variable rate which takes into account the tenants’ actual usages or a flat rate that you calculate based on average rates per month over the course of a typical year. Like the fully inclusive option, both you and the renters are secure in who is handling the utilities which makes for a more streamlined process for all parties.

Just as with the all-inclusive option, however, there’s the potential for incurring higher expenses than you’re receiving payments. Since the usage needs can easily fluctuate from one year to the next with variations in how hot or cold the seasons are, so too can the utility rates that suppliers charge. If not closely, smartly and accurately budgeted, this option also can lead to more expenses than planned for. This can be better managed, though, by using a month-to-month flexible fee structure, where the cost to the tenant can fluctuate based on their own usage and market rate conditions.

Tenant Responsibility

The last option is one of the most convenient for property owners, as the responsibility for connecting and paying for utilities falls not on them, but on the residents themselves. This also gives the tenants more flexibility than owner-managed utilities, since they can opt to choose their own supplier and have a direct look at their own energy usage. By having their own bills, renters can see how much they spend from month to month and keep that in mind when thinking about their consumption of gas, electricity and other utilities and ways they can save themselves money.

Utility BillHowever, this may lead to problems for the tenant with scheduling connection and disconnection appointments or having to provide proof of residency to receive services. There is also the potential failure of a tenant to pay their own bills, which can lead to problems for the owner. If bills are left unpaid, utilities can refuse to reconnect service for new tenants or even put liens on the property in extreme cases. In addition, an owner may also want to pay for selective utility services like water and sewer, lawn care or plowing so that they do not have to worry about any fines being levied by municipalities for improper property maintenance or unpaid service charges.

No matter which approach you choose for managing utility costs at your property, Garner Properties & Management can work with you to effectively market your property and handle the monthly budgeting and payment of your included utilities. We can also work with you and your tenants to arrange utility connections or adjust monthly costs, as necessary. Give us a call or fill out a contact form online to find out more about our full range of property management services today.

Written by garnerproperties

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