Landlording and Utilities?

Question

Hi guys! I'm new here (first post) - I've stalked you guys for a while now, figured I'd finally join.

I'm seriously considering investing in real estate (via MFH and hopefully getting paid to live there). I read a post by Brandon somewhere and he said it's a good idea to manage your own property.

What I'm trying to figure out is how does a landlord handle utilities? What is the typical process? Do I register with the state/utility company? What do I do, especially if I want my tenants to pay their own utilities (as in not included in rent)?

Any general ideas?

Honestly, I'd rather just have a property management group do it but I figure I won't have the money off bat. But how do those typically work (cost, etc?)

Roy N. · Answer

@Matthew Hite In some jurisdictions you are not permitted to split common utilities without sub-metering - the argument being how can you prove who consumed what amount of the resource. As @Aaron Montague mentions, it is preferable to get the utilities into the hands of the tenants. The traditional manner in which this is done is to transfer the utility to the tenant. This works fine with electricity and gas, but in many jurisdictions the water/sewer is either not segregated by unit or, in the case of a SFH property, must remain in the name of the property owner - which leads to the landlord carrying this utility. We have many student tenants who are unable to secure utilities in their name without posting a substantial deposit - this has to do with their not having a sufficient credit history. To overcome this, yet still keep the tenants accountable for utilities consumption, we have developed a Utilities Budget Agreement. If the tenant elects this option, we execute a separate agreement as a Schedule to the lease which establishes a monthly utilities prepayment to be made by the tenant. The utilities remain in our name, but we provide the tenant with a copy of all utility bills so the can track their usage. Every three months we reconcile the funding from the tenant against the actual utilities usage. If there is a surplus, we give the tenant the choice of leaving it in the fund (i.e. winter is approaching) or having it applied toward the next month's rent. If we are at the end of the lease, then we will refund any surplus to the tenant. If we find the Utilities Budget funding is in deficit when we reconcile, we invoice the tenant and future fund contributions are increased to mitigate the chance of a repeated shortfall. {We've only had a situation where the utilities consumption exceeded the contributions twice}. So far, this has turned out to be a big hit with tenants: They can a single point of payment for their rent and utilities. Form a landlord perspective, we are not renting with utilities included (a big plus ... we are also able to assign the water/sewer to the tenant in our SFH student rentals) and, as an added bonus, it allows us to track the performance of our buildings following the completion of a deep energy efficiency renovations.

Account Closed · Answer

It really depends on the property. A single family home converted into multiple units probably only has one set of utilities coming into the property. In this case you would have the utilities in your name. You could then charge a flat rate each month or divide the bill some other way between the tenants. Most purpose build multi-family properties have separate meters for each unit. In the this case you definitely want the tenants to place utilities in their name. Having the tenants take on the responsibility is almost always the best answer.

Kendra Gaines · Answer

Hey guys! Thanks so much! This makes so much sense. Because while I live in an apartment now, when I was doing my hunt a lot of the stuff didn't make sense. This was very informative As far as the process it sounds like I'll have to call the companies. Water and trash are taken care of by the city and electric is taken care of by Dominion Power!

Marcia Maynard · Answer

How you handle it also depends on your local laws and utility company policies. In our municipality the owner of the property must pay for garbage/recycling service for multiplexes, but we can require the tenant to pay for such on single family homes. One of our plexes does not have separate meters for the water, so we pay for that too. However, we factor the cost into the rent. I've seen utilities handled in a number of ways by different property owners. Some take a utility deposit in case the utilities don't get paid and become a lien on the property. In our town the tenant will be chased for unpaid electricity, natural gas and telecommunication services. The water/sewer and garbage/recycling companies will go after the owner and put a lien on the property if necessary.

Aaron Montague · Answer

My leases state: Tenants responsible for all utilities with the exception of: AAA BBB CCC I pay for Sewer and Water on both my current places. I also pay for heat on my 3 family. Paying any of these utilities is a bad way to go in my book. When you are writing leases, check with your: State County Town/City For various regulations. If you find any inconsistencies (town says landlord must cover water, state says landlord can bill for anything) talk to the folks at town hall.

Matthew Hite · Answer

I've wondered the same thing. Are each unit within a MFH metered separately? Or, would you have to split the cost between tenants? I know that lease agreements vary from state-to-state but do you have to include a clause within the lease agreement that utilities are not included or is that typically the standard?

Aaron Montague · Answer

@Kendra Gaines Welcome to BP. Come and enjoy the knowledge. I 2nd Brandon's recommendation to manage your own property, at least for a while. Always build the cost of management into your calculations for cash flow. This serves 2 purposes: 1. Lets you know how much money you are making per hour spent managing the place while you are the manager. Make sure to account for driving time. 2. Budgets the money for the manager when you decide to move away from doing the management yourself. Move all the utilities to the tenants if possible. I cannot recommend this enough. 1. It forces tenants to budget their own money for utilities 2. There are less bills for you to pay each month. Allowing for better estimates on cash flow. 3. Tenants the world around abuse included utilities if they have any control over them. This ranges from running ACs 24/7 in the summer and having the heat on 80 all winter. If it gets too hot... open a window. Tenants do this everywhere, I've never seen an exception (including myself when I was a tenant) 4. Tenants need to sign up for their own utilities. They just need their address and apartment number.