Renting your property comes with big responsibilities, the majority of which are financial in some capacity. It takes money to maintain your property. You’re responsible for all major repairs, paying your mortgage (if you have one), and property taxes.
When you’re already spending a good amount of money to generate income from your investment property, is there any reason to add your tenant’s utilities to your stack of bills? The answer depends on what kind of property you’re renting, among other factors.
There are pros and cons to both sides:
- Including utilities in the rent will rent your property faster.
- You can charge more than the going rate for rent in your area.
- Tenants won’t have to set up their own utilities, eliminating the possibility they might not transfer them over.
- You’ll have more bills to keep track of and pay.
- In summer and winter, electricity costs can skyrocket.
- If your property isn’t energy efficient, you’ll be paying more, unnecessarily.
Access to utilities is required
As a landlord, you’re required to provide access to basic utilities like electricity, gas, trash collection, water, and sewer or septic. However, you’re not required to pay the bills.
Although tenants are responsible for paying their own utilities, many landlords choose to pay some or all utilities as part of the rental agreement.
Whether this is correct for your situation depends on many factors including the type of unit you’re renting, the current rental market, your location, and the other perks you’re offering.
Consider the type of unit you’re renting
If your rental property is a large, 4,000 square foot, three-story home with four bedrooms, you probably shouldn’t cover heating and cooling costs for your tenant. Larger properties require more energy (and money) to heat in the winter and cool in the summer.
On the other hand, if you’re renting a small, 1,000 square foot, 2-bedroom property, you’re in a safer position to cover heating and cooling costs for your tenant.
Energy bills fluctuate by the month
Utilities aren’t always cheap, and they naturally fluctuate from month to month. Energy bills will rise in the peak of summer and throughout winter.
If you don’t have central air or heat, your tenants will likely install an air conditioner and use an electric space heater – two appliances that use high wattage, guaranteed to skyrocket the energy bill even higher.
Standard space heaters aren’t as efficient as central heat, so your tenants are likely to use one in every room during winter. Although heat emitted from infrared heaters is efficiently absorbed by clothes and the human body, there’s no guarantee your tenants will use them.
If you calculate the cost of using a typical 1500-watt heater for eight hours per day, at 12 cents per kilowatt-hour, the monthly cost is $43.20. During the winter, if multiple heaters are being used and left on all night, that number will multiply.
Add the cost of electric heaters to the use of regular household appliances like TVs, computers, refrigerators, freezers, and stoves for an energy bill of several hundred dollars.
If you can recover the cost of a higher energy bill through the cost of rent, it might make sense. If you can’t charge enough rent to cover the cost, it’s not a good idea.
How energy efficient is your property?
The meter is always running when electricity is being used. Thankfully, energy efficient appliances really do cut down on energy consumption and the resulting expense.
If you want to cover your tenant’s energy bill, make sure your home is energy efficient all around. This includes replacing appliances with new ones rated specifically for efficiency, properly insulating windows and doors, and upgrading to a modern central heating system.
You could even install a geothermal heating system that leverages the Earth’s natural heat and moves it into your home. Geothermal heating is more efficient because the heat starts at a higher temperature, usually around 50 degrees Fahrenheit, creating a shortcut to reach the target temperature.
Consider covering only flat-rate utilities
While energy bills fluctuate greatly, other utilities like water, sewer, and trash don’t fluctuate much. That’s why most apartments cover water, sewer, and trash but not electricity or gas. Although at times they do increase, it’s minor compared to electricity.
Another option popular with apartments, especially in college towns, is to include high-speed internet and Wi-Fi in the rent. Providing internet and Wi-Fi works best when there’s an apartment manager living in the building who can reset the router or call the cable company when the internet goes down.
You don’t want to offer unreliable Wi-Fi to tenants because many of them could be working from home, or doing their schoolwork after office hours. Without the ability to reset the router, they’ll be stuck.
Is your property sub-metered?
If you’re renting units in a multi-dwelling property, it might be master-metered which means there’s only one meter for all of the units. This makes it impossible to have tenants pay their exact portion. Some landlords charge a flat fee in this case, or they have their units sub-metered by a professional.
If your property is master-metered, it might be easier for you to include utilities in the rent so you don’t have to deal with calculating everyone’s portion.
Are you offering other perks?
If you’ve already raised the rent to cover perks like covered parking and laundry facilities, adding even more for utilities might turn people off. On the other hand, the more you include in the price of rent, the more appealing your listing is. If you’re going to include utilities, don’t just include one. People are attracted to the convenience of not having to setup utilities and pay additional bills.
Let common sense dictate your final decision
If you’re renting out a small property with energy efficient appliances and central air and heat, you’re in a good position to consider covering your tenant’s electricity. However, if your property is a large dwelling with lots of space, it’s best to only cover utilities like trash, sewer, water, and internet.
Choosing to include utilities in the rent is a personal choice. If the market won’t allow you to recoup the cost of utilities by raising the rent, then let your tenants pay their own utilities. You have enough on your plate as a landlord.
Green Residential can help
Hiring Green Residental to help manage your property can lighten your load with tenant screening, property leasing and rent collection. We’ll even handle repairs and maintenance performed by a network of professionals with a track record for excellence. Contact us today to find out more about what we can do for you.