How to provide a value add to a tenant without losing your shirt

Question

Good morning All,

I have a couple offers pending on multi-family properties and I wanted some advice. If I can land these properties, I am thinking about including water and sewer in the rent. I have seen properties marketed in this fashion and wanted to know how I set it up and how can I control the usage. I think this is enticing to renters, but how do I keep my costs down.

Has anyone done this before? Single or multi-family.

Michael G. · Answer

Rod

No way! Are u crazy? Why even consider this? Do you really want to get into paying for stuff your Tenants use? Why stop there? Why not pay for their cooking gas, internet, cable TV, phone, cellphones and electricity?  Do you realize how much of something Renters use when they aren't paying for it? Ungodly, wasteful amounts!

We used to have a unit where Electricity was 'included' in rent and not broken out. They left lights / ac / heat on all day and racked up crazy bills. Then we got fed up and insisted they pay for it themselves... guess what? Their usage plummeted suddenly. Good for us, them, and the environment.

Same goes for water. If you pay for this, you'd be setting yourself up to get hosed (pun intended) It will cost you waaaaayy more than you think and you'd be harming the environment because they'll be wasteful with their water use.

Were doing the opposite : B/C our buildings only have one meter, We implemented a RUBS water billing system (google it) per occupant and now each tenant pays their fair share.  Guess what? Water use is now, suddenly, magically, wayyy down.

And so are our costs. Our ROI is wayyy UP, happily.

Better for the environment and a win-win for everybody.

Pls do yourself, the environment and all Landlords everywhere a favor: Do NOT ever offer to pay Tenants water bills or other utilities.

Rod Smith · Answer

Thanks all.....Your feedback is greatly appreciated.

George Paiva · Answer

Up here in Connecticut regarding utilities, its so highly regulated on what you can charge tenants and what is tied to a property owner.  I am with

@Al Williamson on if you want to provide a value add its more of wifi, laundry, security, garage or storage space, etc...

Al Williamson · Answer

@Rod Smith I understand your intent, but be careful not to lower your NOI. You want to move towards having tenants pay for what they consume IF the resource has a variable cost.

If you were talking about sharing Wi-Fi that has a fixed monthly cost, I would say go for it. But water - not a good idea.

Keep your eyes open, there are countless ways an owner can help tenants cooperate and live more efficiently.

Michele Fischer · Answer

Agree that the practices in your market matter, but I'd also suggest that you can be trendsetter in your market.  We never saw extra rent costs per pet, but we tried it and liked it, and now see it more from others.

Water is the ultimate responsibility of the owner in our city, so we want to include it in rent.  For our lowest end units they don't have a choice, unless they can get it cheaper by having it in their name (disability, etc.).  Otherwise they indicate on the application - included in rent for an extra $XX/month, or an extra $XX deposit to cover what we could get stuck with if they want it in their own name.  We make it clear that the water sewer garbage is intended to be a pass through and we will use the 30 day rent increase process if their usage is higher than what we normally see.  We give them a few warnings, then adjust rent.  We track it by property and would give a credit on rent in December if their usage was consistently low, but normally on average we are subsidizing it a few dollars a month.

Jason Fraser · Answer

if you listen to the podcast, Ben gave a really great answer to this one....the marketplace.

Elizabeth Colegrove · Answer

@Rod Smith

I personally think that would be the last thing I provided my tenants unless I was required to do so. I know many of the apartments I look at, offered washer/dryer, accent paint job, ceiling fans or something else tangible. I found that alot of tenants were touchy feely.

Steve Babiak · Answer

In a multi, those utilities might already be the landlord's bill since there is often just one water meter and just one sewer bill.

Rod Smith · Answer

thanks @Jason Fraser . I was going to listen to it today. Maybe I should have listened to it first....lol

Jason Fraser · Answer

listen to podcast 61. They touched upon covering utilities vs tenants covering them.  Two hours of great content on multi family investing.