Understanding Lease Agreements and What About Utilities?

[James Hutson]

A happy Saturday afternoon to you all!

I've got two short questions for you

(1) Is it more profitable/smart to include utilities in the rent or make the tenants pay utilities and have a slightly lower rent? I know the answer will vary based on location, price-range, size of the complex etc... so perhaps a few mock scenario descriptions would be helpful.

(2) One of the BP Podcasts (I believe it was between shows 1 and 70...I know that's not very helpful), the guest was talking about the very detailed and length lease agreement that he has with his tenants and that he had placed it either here on BP or his company's website. Does this ring a bell? May be the same guy who talked about 'training your tenants'.  If they're two separate people, I'd like to know who each is. I was hoping to figure out who this was so I could look at and study their lease to learn more about what goes into a well-structured lease :)

[Account Closed]

Originally posted by @Ashley Pimsner:

@james hutson, if you're talking about residential loans which are units between 1 and 4, then  it is completely up to you as to how you bill out the utilities, as you can either do it as you suggested with a slightly higher rent and include utilities, or  have the tenants pay for utilities individually. Personally if I have the option I never pay for utilities

However, if you're talking about a commercial deal then anyway that you can increase your net operating income (NOI) by decreasing your costs, such as utilities, becomes money in your pocket through forced appreciation. Increased NOI/Cap rate= increased value of a commercial deal.

Ex. Decrease utility expense, formally paid by landlord and passed onto tenant, by 700 a month which increases NOI by $8400 annually/ local cap rate of 10%= additional $84000 in forced appreciation for commercial deal.

Hope that helps.

Except you will not be able to pass along a $700 a month expense without a decrease in rent.  So you have not forced any value.