Increase rent or transfer water and sewer - which would you do?

Question

I'm 1.5 years into my first rental and the tenants leases will be renewing 4 and 5 months respectively (it's a duplex). I made some dumb mistakes when I first started (didn't go on BP and learn first), so based on what a friend was doing in CA (my property is in IN) I told tenants they pay for gas and electric but water and sewer was covered by me (water is separately metered for each unit). Looking to the renewals coming up I am contemplating offering the tenant the option to not have a rent increase and instead take over the water/sewer bill in the new lease, should they decide to renew. The way I plan on presenting this is that it would a) spare them from having an actual rent increase and b) give them the ability to control the cost as they can control their water usage (in case they have been more wasteful than they could be). This would, of course, reduce my expenses with the property and net me a cashflow increase, and keep me from kicking myself every month I pay the bill for not having done it correctly from the get-go.

What are your thoughts? Do you foresee problems/issues/legal ra

Nathan Gesner · Answer

Arthur, I get the feeling you have a twinge of guilt and hesitation around any increase. You've got to get over that. Do the dairy farmers and grocery stores cut deals every time the price of milk increases? No, they just increase the price and you pay it. Same with gas, property taxes, utilities, hamburger, and Netflix.

Your taxes are going up. Cost of materials for repairs has increased. Insurance went up. Heck, social security is increasing benefits 5.9% and that's still not keeping up with inflation! It's normal for the cost of goods to increase and most people understand this. If you're apologetic, it implies you've done something wrong and can trigger your tenants to feel cheated. Just treat your tenants honestly and fairly.

Dear Tenants, your lease is due to expire in 60 days. I am offering you a one-year renewal with the following conditions:

• Rent will increase 3%. New rent rate will be $975.00 per month;
• You will take responsibility for water. Average cost is $55 per month.

If you wish to renew, initial acceptance below and return to me. I will create a new lease and send to you for signature during your final 30 days of the current lease.

I wish to renew under the terms indicated above. INITIAL: ________

If you wish to terminate, confirm your move-out date and return this to me no later than 30 days prior to termination.

MOVE OUT DATE: _______________         INITIALS: ____________

If I do not receive a response at all, we will expect you to vacate no later than midnight on your currently scheduled termination date of [DATE].

Your Landlord

Bjorn Ahlblad · Answer

Option 1 raise the rent 3-5%. Option 2 have them pay water and sewer. Which amount is greater? I don't forsee any legal problems; you will have to ferret that out. Get everything in writing signed and initialed.

I would not give them a choice. You choose and let them know.

Bill B. · Answer

Add water and sewer. In he future your lease you should say tenant is responsible for all utilities, don’t specify any and then none can be forgotten. The reason for the utilities instead is a) people paying for things tend to use less, b) when you repost it you’ll be advertising a lower rent c) it’s expected that you would pay your own utilities, that’s not really an increase.

ps. Rents are up 10-20% in many markets so you might go with 5% increase and utilities instead of 10%+

Ishmael Johnson · Answer

This means tenants would have to put the water and sewer bill in their name and then send you confirmation that they did so?

Ishmael Johnson · Answer

@Nathan G. you don’t miss

Douglas Snook · Answer

One more thought, check your local laws about having the tenants pay water. In MA it is unusual for tenants to pay water and it can only be done if certain criteria are meet. Been a while since I looked into it but as I remember it you have to have separate meters for each unit, low flow faucets and toilets installed and a certificate from the town water commission that the requirements have been met. (Probably missing something but you get the idea)

Also what is the custom in your area? What are the tenants expecting to pay for? If they have otherwise been good tenants you may just want to go up on the rent as that is what is usually expected and only switch to tenants paying water if these tenants leave.

Arthur McCormack · Answer

Thank you all for your honest, insightful and very helpful advice. Yes, I admit there is a little hesitation; they are good tenants in that they pay on time, don't cause me hassles, and upkeep the property, so the idea of going through the process of finding new tenants plays a part in my hesitation. But, what I am drawing as the most important lesson in all of your advice combined is that this is a business, and it needs to be run as such (no kidding Art, duh!) Thank you.

Increase rent or transfer water and sewer - which would you do?

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