How do I put the utilities on the tenants without loosing them?

Question

I've been looking to buy a multifamily in a new area that should have good numbers. A lot of the properties I'm looking at are close to a college and have a strong rental history. I'm finding places that are 100k and bring in 1400 in rent. I at first was very excited about these numbers especially if I could purchase the property for 85k to 90k. But, in this town the landlord seems to pay all the of the utilities which take away most of the cash flow along with high taxes. How do I put gas, and electric back on the tenants without loosing them? I spoke with a local realtor and he said that he sees a lot of tenants taking advantage of this especially in the winter. One property I was looking at had a $350 utility bill because of all the heat being used. How can I get creative with these types of properties to make them profitable?

Samuel Sedore · Answer

I would always pass the puck to the tenants. People have a lot more sense when they pay out of pocket, if they don't pay utilities it's nothing for a tenant to leave the unit at 70+ degrees all day when working or leave electric heaters plugged in 24/7

Skyler Smith · Answer

I have a property that has a gas bill higher than $350. Just because I write the check doesn't mean that I "pay" for the gas, I figure the cost before setting a price to rent the place out.

I wonder if you could offer tenants an "either or" scenario - where you offer lower rent if they will pay the utilities, or average out last year's utilities and add that to their rent payment. As far as saving the environment goes, tenants paying their own utility bill is extremely effective.

Dawn Anastasi · Answer

There are thermostats you can put in that limit the heat from between 68-72, so the tenants don't crank it up.

Matthew Paul · Answer

Ask the tenants this .    When you rent a car , is gas included ?   So why would a consumable be included in the rent  ?

Account Closed · Answer

I'll just be blunt - only an idiot would give their tenants unmetered utilities. They WILL waste them, this is a known, proven fact! It doesn't matter how well sealed and insulated your unit is when they open the damn windows in December! I don't blame them at all, I would do the same thing. Fresh air and free heat, what's not to love about that? Light switches? Why do we need those? Just leave it on, I don't pay the light bill. My LL is cool like that...

A limited thermostat will do nothing. They can just plug in a space heater. Or ten. While the windows are still open!

Furthermore, if a tenant ever is not happy with you, (and this WILL happen if you are a landlord long enough) then the tenant can make an effort to waste your utilities, he could cost you thousands! I used to lease an industrial unit many years ago - the landlord was an idiot and always causing problems. Water was "free", so I left it running. All the time. It was like a fountain. I bet the water bill cost more than my rent did. And she deserved it, too. I personally know the city water charges in that city were ridiculously high.

So, what can you do about it? Add utilities plus the rent like everybody else. Or add a variable "heating charge". It MUST be variable such that you can charge the tenants when it goes over a certain threshold. How exactly you write this into your lease is a careful word game you have to play in order to stay within your state's laws.

NOTHING ELSE WILL BE SUCCESSFUL, I CAN GUARANTEE IT! Tenants waste utilities when not directly responsible for them, even those with the best intentions. Many tenants see the landlord as some greedy rich guy with so much cash stuffed in his pockets it's not worth his time to pickup that $100 bill he dropped. You are often the enemy, even if you are a really nice guy.

Penny Clark · Answer

I would first invest in upgrades to conserve heat - thermostats that can't be readjusted by the tenants, inspect and seal gaps along windows and doorways, etc. If your tenants are on a current lease that includes utilities, you'll have to wait until it reverts to a month to month. When it does, you can do one of three things: raise the rent to compensate for included utility cost; draw up a new lease showing landlord no longer pays for electric and gas and transfer it out of your name ( If you go this route offer a small rent decrease to compensate); If tenants have low to moderate income, they may qualify for cash discount from company to help pay their bill. In Sacramento, both SMUD and PG&E have these. SMUDs program is called HEAP and PG&Es is called CARES. I keep applications on hand for this purpose; or, you can start fresh, by not renewing the lease and get new tenants in who are okay with paying their own utilities. I encourage all our owners to have any electric and gas accounts put in tenant's name and include water in that as well. Reason being it makes tenants accountable for their use and, if these services are provided by you in the lease you may be stuck paying them even when the tenant stops paying your rent.

Hope this helps and good luck!

Michael D. · Answer

Assuming that these items are separately metered, this is really simple: The next time the lease comes up for renewal, tell them they need to put the utilities in their name and lower the rent an appropriate amount to compensate.

This will work out better for everybody.

Thomas S. · Answer

There is absolutely nothing you can do. The market dictates to formula not the landlord.

John Cohen · Answer

@Levi Caron First if the market supports it you shouldn't have a problem. 1 way to find this out is to call other properties and see if they are charging utilities to tenants. Another you want to do is phase it in to the property (for multifamily), don't just go out and charge 100% right to the tenants, phase it in over 1 year with rent increases.

Levi Caron · Answer

@Skyler Smith

I agree with you Skyler. I'm looking to get a good enough deal on the property to be able put the utilities on the tenants even if I have to lower the rent a little bit. I'm hoping that most of the tenants are on a month to month so I could possibly fix up one unit at a time.

How do I put the utilities on the tenants without loosing them?

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