Rental Property Utilities Breakdown

[Omer Sultan]

Hello BiggerPockets Community!

I'm trying to figure out the best way to handle my utility expenses on a rental property. I haven't closed on a property yet (I actually haven't even made an offer yet *sweat-smile emoji* <---look that up on Google if you don't know what that is because it's pretty spot-on), but I've got my sights set on purchasing some student housing in a small college town in Upstate New York. Most of the properties I've been looking at are single-family homes that were turned into multi-family homes to accommodate a larger number of occupants. The way I see it, there are 3 options when it comes to billing tenants for utilities:

Option A) There are separate utility meters and the tenants are responsible for paying their own utilities. Simple.

Option B) There aren't separate utility meters, so you charge each tenant a predetermined monthly utility fee. For example: $100 per month per tenant regardless of their consumption (which could end up being higher or lower).

Option C) There aren't separate utility meters, so you charge the tenants a variable monthly utility fee based on their consumption. For example: I receive a total of $1,000 in utility bills on a given month for a single property containing 8 tenants. Each tenant is therefore responsible for their rent + an additional $125 for that month ($1,000 / 8 = $125).

Are there any flaws with any of these options that I'm overlooking? Are there any other options besides these three?

Thanks in advance BiggerPockets Community!

[Stephanie Jacobson]

Hello again Omer!

Unfortunately in Binghamton most landlords for student housing include utilities whether it's separately metered or not. In a typical West Side rental, you'll get $450ish per bedroom but will need to include heat, electric, water and wifi.

The way many of my investors avoid finding themselves in a bad situation is that they put a cap on utility bills in the lease. One of them says something to the effect of "Each person is allotted $35/month for utilities for a total of $175 for five people. Any amount billed to the landlord beyond this number will be added to your rent." So if he gets a $200 bill across his utilities, he adds $25 to their rent that month and sends them a receipt stating what the extra charge was for.

The students here expect that sort of arrangement, but it is harder to rent to students if utilities are extra.

Call NYSEG on a building you're interested in to find out what the average bills have been over the past year.

Hope this helps!