How to split utitility costs between landlord and Tenants

[Kyle Schreur]

Hey so I have been googeling around and doing research but I can't seem to find a good answer or any information. It might come down to how I'm typing up the question and Google keeps finding me results that have a more general answer. But my question is more nuanced. I'm specifically wondering if it's possible to set up utility accounts where I can contribute a flat specified amount for electric gas water etc. For example 100 dollars flat amount. And then the tenants pay the more variable amounts so it takes me out of the equation if they decide to use more energy during certain times. I feel like that's a win win for both the landlord and tenant. It kinda creates a much smaller threshold for the tenant to save money if they were to keep an eye on their usage since I'm paying a large chunk of it, while also being able to keep any eye on how much they spend so it gives them that personal incentive to watch their usages. It benefits me for the obvious fact of bookkeeping and giving me predictable fixed costs. I'm looking for properties to rent out bedrooms and I understand the benefits of just including utilities in the rent, baking it in. I also understand all the reasons why that's the case. So please for the sake of time and efficiency let's leave those answers alone if we can. Would anyone know how to set it up using my idea? Is there any software, websites, or do I have to contact each utility company separately and set it up that way? I've heard of platforms that allow the landlord to bill the tenants for the utilities so it's still in there name. Any information you can share would be appreciated! 

A) is it even possible

B) any resources you can direct me to if it is possible 

C) what software or website is there that sets that up

Thank you!

[Nathan Gesner]

Quote from @Kyle Schreur:

There's more detail in my book, but here's a taste.

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 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 fairest 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 electricity due to the reduced natural light and more people indoors. Electricity can also spike in the summer with A/C. Contact the utility provider and get a 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 annually 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 more complicated than it has to be. If you have four 2-bed/1-bath 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 2-bed/1-bath with a washer/dryer and Apartment B is a 1-bed/1-bath 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 can hear the upstairs neighbor showering twice daily. You can end 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 with 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 many options, but don't make it more complicated than it needs to be. Tenants save money when using a shared meter, so there's plenty of room for error when calculating how to distribute the charges.