Why or why not pay for Water trash etc.utilities Single Fam House

Question

So I'm going through my rental property portfolio and raising rents due to proposition 10 and possible rent controls in California... see (no on prop 10 www.noprop10.org)

For single family houses:

I was wondering what the pros and cons are to paying for utilities?

Obviously it is a benefit to pay for water because perhaps the tenants could water the landscape.  Perhaps put a clause that they have to keep the landscape watered? But do you think I shouldn't do this so I can increase total NOI?

Also anyone see pros cons of paying for electric, gas, trash pick up?

Ned J. · Answer

There is ZERO upside to paying utilities at a SFR.... if its free to the tenant there is ZERO incentive for them to keep their use reasonable....

If I didn't have to pay my utilities you can be damn sure I would have my AC on 70 degrees on ALL summer and the heat at 82 ALL winter

Ali Boone · Answer

I don't see any upside either. Maybe it could look attractive to prospective tenants since other properties likely don't offer it, but if someone is that desperate to find a tenant, there might be pricing issues with it. And with that said, it'd probably be better to lower the rent amount $100 or something rather than offer utilities.

Nik Moushon · Answer

For a SFH I dont see the point in paying for any of the utilities. This changes some what in MF but I wouldnt in SFH.

John Underwood · Answer

I don't see any pros to providing utilities. There is no incentive for them to conserve since they are not paying the bill. If they have enough pride to water the grass flowers they will still do it even i they are paying the water bill.

I think paying for utilites would lower your NOI. They are not going to take into consideration the cost of what you are providing so you will loose on this deal.

You can have a clause to water the grass, but are you going to drive by and enforce that are actually doing it?

If you are going to try and max out your NOI then do not pay for any utilities.

Joe Hines · Answer

Generally speaking, I don't think it is a good idea to include use-based utilities in the rent (like water or electricity).  The key economic point is that the tenant will use as much as they can afford to pay.  If it is free (you are paying), then there is no incentive to keep usage under control.

If you're concerned about the lawn, just offer a clear rent reduction in exchange for the water.  That makes them whole, gives them a good lawn and keeps them accountable for their water and other utility usage.

Why or why not pay for Water trash etc.utilities Single Fam House

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