Rent and Utilities question

[Brian Wolf]

Hey guys,

Question for you, I have a duplex In NJ that had 1 oil heating unit for both units so I payed for heat. I’m currently getting 2 units so that cost won’t fall to me anymore. I’m curious what kind of rent adjustment this calls for? Unfortunately Comps are few and far between so it’s more difficult. Ultimately I’ll be raising rent come new lease time to account for other improvements and such but curious how I should calculate this in. Thanks!

[Peter Nikic]

This is what I've done and it has worked well.

In one case, I had 3 apartments, so I estimated the square footage of each apartment (in cases where all the units are identical, then it's even easier - no trying to figure out percentages). In this case, 1 apartment was 40% while the other 2 were 30% each (for total of 100%).

Then I added up one year's worth of utiltiy bills (fuel oi or electric etc). Then I applied the percentage of each to the respective units, divided by 12 (months) and added that number and fixed it to their monthly rent. 

After a while, it's just rent while you're paying the utilities. As much as you can, you can keep an eye on the annual utility expenses and try to stay close in case those numbers change. Use the changes to apply increases (if necessary). Sometimes it's utility costs going up, other times it's overconsumption by tenants. 

Here's the math:

Utilities       Percentage       1/12th                Current Rent           New Rent

$1200          40% = $480         $40                    $750                      $790

$1200          30% = $360         $30                    $650                      $680

$1200          30% = $360         $30                    $650                      $680

Good luck, reach out if you have any other questions or need some clarity on this.