How do I bill utilities and estimate water and sewage fees?

Question

I am a soon-to-be new landlord and have trouble finding answers to some questions I thought would be easier. I will most likely pay for water, sewer, and general trash.

Where do I find an estimate of how much water, sewer, and general trash costs?

How do I go about billing the other utilities most efficiently?

The house address is 331 Bond St, Elizabethport, New Jersey, 07206

Here is my analysis of it: https://www.biggerpockets.com/...

Matthew Brown · Answer

This may be a silly question, but how do I find out what utility company the house is under?

Joseph Guzzardi Jr · Answer

@Matthew Brown water and sewer can typically be found online thru the municipality. Most are online now. If you Google the town, then water/sewer payment there should be a link if you type in the address.

Eliott Elias · Answer

Ask the previous landlord what they were paying in utilities. What other utilities are you referring to?

Tiffany Colvert · Answer

I would call the utility company to get past historical usage for your estimates. Then bill in arrears or have the tenant set up those utilities under their name with you as the backup for default in the case of non-payment (this way you get notice and can prevent utility shut-offs).

Matthew Brown · Answer

This is amazing thank you!

Nathan Gesner · Answer

The seller can tell you what utility providers he uses. Call them to get historical averages, highs, and lows. If there is a utility that is separately metered, make the Tenant set up their own account and take responsibility.

HOW TO SHARE UTILITIES 101

You have a property with two or more units and the utility meters are shared. There are a few options.

1. Pay to separately meter the utility. This can be very expensive and is usually the worst choice to make because you can't justify the cost.

2. Charge the tenants a higher rent rate and include utilities with their rent. This is the simplest method, but it also means your tenants are more likely to abuse the utilities by leaving windows open with the heat or A/C running, leaving lights on, ignoring the toilet that constantly flushes on its own, etc.

3. Pay the bill yourself, then reimburse yourself by charging the tenants based on a formula. This takes a little more work, but it's the most fair and reduces the likelihood of tenants that squander utilities.

If you choose #2 or #3, there are considerations:

Start with an average. Use varies throughout the year. Heating costs go up in winter, as does electric due to the reduced natural light and people being indoors more. Electric can also spike in the summer with A/C. Contact the utility provider and get an historical average based on the last year of use. It won't be 100% accurate, but it will be close enough. I recommend you do this each year to adjust for utility increases and other variables. If your average heating bill is $150, you may not collect enough in the winter months when the bill reaches $225 but you'll collect extra in the summer when it drops to $65. If you base your tenant charges on the historical average, you should come very close to collecting the entire amount over a one-year period.

Charge a higher rate. If the water bill is $100 a month, increase the price by 20% (or whatever you decide is fair) to compensate you for the time required to split and bill and to cover additional use when tenants squander the utility. If the bill is $100 a month split between four units, increase it to $120 and charge each tenant $30.

How to calculate charges. Don't make it harder than it has to be. If you have four 2bed/1bath units with the same appliances, split it four ways and call it a day. You can make minor adjustments based on the type of appliances (dishwasher, clothes washer and dryer, air conditioning, etc.) and the size of the rental. If Apartment A is a 2bed/1bath with washer/dryer and Apartment B is a 1bed/1bath with no washer/dryer, Apartment A should pay a higher rate. Another option is to split the cost based on the number of occupants in each unit but this also means you'll need to adjust the charges as tenants move in/out, so it requires more work and I wouldn't recommend it. I recommend a simple spreadsheet to check your math and it will make it simple to adjust each year.

End the complaints. Tenants may complain about your method of calculating how much each unit pays. They think it's unfair because they only shower once a week but they can hear the upstairs neighbor showering twice a day. You can put an end to this by showing them an actual utility bill. Why? Because a large percentage of the charges are base fees that do not change based on use!

I just looked at a utility bill and it has a total charge of $184.12 but $116.50 is from base fees! If I divide this bill by four units, each tenant would pay $46.03. If they were separately metered, each tenant would pay the $116.50 base fees and their individual use, which would be 3x higher than what they pay when sharing a meter.

There are a lot of options out there, but don't make it more complicated than it needs to be. Tenants actually save money when using a shared meter, so there's plenty of room for error when calculating how to distribute the charges.

Theresa Harris · Answer

If the units are on separate water meters, I would have the tenants pay for their own water.  When you include it in the rent, they tend to use more than they would if they were paying it themselves.

Matthew Brown · Answer

Thanks for the response! All the units (3) are on separate water meters.

Randall Alan · Answer

You should be able to reach out to your utility companies and ask them for what the average bill has been for the property.  My utility companies will share this information.  As for how you bill them - me personally - I would make them a part of the rent and maybe pad them by a little bit just in case average isn't average across a year.  Sewer and trash where I am at are included in property tax bills...but maybe a NJ landlord can speak to that if it is not the case there.  The problem with trying to bill them separately each month is that what if you have one little old lady in one unit, and a family of 6 in another?  Water will be 6x different between the units, etc.  Now you get into trying to subdivide based on occupancy, etc.  By making it a part of rent, and adjusting it each year if rates change, you don't have to fight those battles.  There are companies that sell technologies (flow detectors) that measure how much water goes through the pipes that just bolt onto a pipe... but you are talking about spending a chunk of money to do that.  I wouldn't think it was worth it?

All the best!

Randy

@Matthew Brown

How do I bill utilities and estimate water and sewage fees?

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