Thoughts on incorporating heat and hotwater as a profit?

Question

I was discussing with a friend today the potential of incorporating heat and hotwater as a profit generation source.   This would of course require 3 base things:  1) efficient utilities- a natural gas hookup in this case, 2) a well insulated house (sometimes challenging in the multi units in New England), and 3) implementation of a landlord thermostat to control the heat and regulate it to a range 65- 71.

So hear is the example if a unit's monthly heat would be 250 during peak cold months and 50 maximum during the summer months.  Yet tenants are willing to pay @ 200/month for having heath and hot water included.  So the math works like this 5x 250, 4x100, and 3x50 or $1800/year real costs vs $2400/year of what they are willing to pay. That leaves a potential of $600/ month on the table  profit wise.   Does this make sense to everyone?   Does anyone do this?

Account Closed · Answer

I think that the type of tenant that would be attracted to heat and hot water included in rent are the ones that have unpaid utility bills and can't get them in they're own name, and the ones for whom an unexpectedly large utility bill would be a financial burden. Neither of which are the type of tenant you want to attract.

William Collins · Answer

It a per year calculation (I just caught my typo there) @Cindy Meyer, and right now I have not taken the gamble- I am looking for the collective wisdom of others experience (which is why I value Biggerpockets)!  Thank you @Colleen F.

Maybe this is an #ASKBP question @Brandon Turner at what point do you offer to include heat and hotwater a part of a rental unit's cost? Is it always better to separate utilities and have them directly paid by the tenants?

Cindy Meyer · Answer

I am being stupid (not a rarity) and not understanding your math.  Based on the numbers given isn't the profit $600/yr or $50/mo?  Or are you talking about a 12 unit building?

For $50 a month, you are really taking a gamble on not getting the 3 showers a day tenant like @Colleen F. talks about.

Colleen F. · Answer

It is my experience that tenants forget things that are included in the rent.  While your numbers work I have RI apartments with H/HW included. From a money standpoint I don't think the tenants compare including those things. Don't get me wrong they like them included but when looking at Apt x and my apartment they don't put a money value on heat. They don't know what that is worth.  These are 1 bedrooms so it could be the tenant pool and their experience renting but in general that is what I see.  For HW I would probably just not bother, use varies so much and people who don't pay, don't conserve(think 3 showers a day)

Heat you can put landlord thermostats in and insulate well but that doesn't stop them from opening windows in the dead of winter for some air..( really happened).  If you are already paying implementing those items is good but to switch to that system I would not favor. Fuel costs  vary so you can make more or less depending on how fuel costs go. Keep in mind also one lousy tenant can blow your profit on the heat out the window.

Mike Hurney · Answer

@William Collins

"That leaves a potential of $600/ month on the table  profit wise.   Does this make sense to everyone?   Does anyone do this?"

Just Do It! and let us know how it works...

It's been my experience that when my Tenants were not paying for the heat, they'd regulate it with the windows!

Jassem A. · Answer

You are better off letting your tenants pay their own utilities.  If you are forced to pay for heat for example then you should of course try to make sure the property is well insulated and it might be beneficial to buy a thermostat with a temperature limiter.

Mark Elliott · Answer

well, it sounds like you have thought things thru for the most part. but to combine heat and hot water will require you to have a boiler system, and those can be expensive. even thousands of dollars more than a conventional forced air furnace. that $600 a month is nice, but how long is it going to take to recoup your costs of installing boilers and water heaters in all of your units??? i would imagine it will take you years before you actually see a profit. do some more research and get back to me