Utilities Included in House Hack??

Question

Hi everyone! I am prepping for a house hack scenario and I’m trying to wrap my head around sharing utility costs with tenant. The deal is, I’m going to rent out my 3BR house while I live in the downstairs apartment.  Like a Duplex.

Do I estimate the cost of utilities and include it in their rent? What other options do I have ?

Somebody must have this figured out and I’d love to hear from you!

Thanks, Mason

Jon Reed · Answer

I would highly recommend not including utilities in the rent. I would say a base rent of $XXX per month and then a 50/50 or a 60/40 split on all utilities bills.

You will end up losing money in the long term if you include utilities in the rent.

Patricia Steiner · Answer

Mason, you're in for a discovery...you really do not have any choice but to include utilities in the rent unless you're planning on installing sub-meters. And, including utilities in the rent is more problematic than most because you have no control over the expense. A recent court ruling came down against a landlord/owner who set a utility limit with a tenant and then imposed an "over-use fee" when the limit was exceeded. The court ruled if "utilities are included in the rent, utilities are included wholly." You cannot set limits on thermostats, water usage, etc., nor can you charge a differential above a set amount. So choose your tenant wisely; let the tenant know that his/her conservative use will keep rent/increases down and be to their benefit in the long run.

Congrats on your house hack...

Mason Jeffries · Answer

@Nathan G. Thanks for the sound advice. I’ll need to come up with a formula that makes sense based on an estimated average. I have no interest in creating a new monthly chore and attempting to calculate the tenants usage for each bill. Thanks again

Nathan Gesner · Answer

You can include the utility shares in the rent or you can receive the bill, calculate actual usage, divide it among the occupants, and then bill them each month. The latter option obviously takes more work and is not recommended.

Contact the utility company to get an average for the past year. Let's say your average is $300 a month.

Divide $300 by square footage of each individual, a % per individual, or whatever formula you devise. Just try to make it fair and meet reality.

Because there are additional people in the home, actual use will probably increase a little. And because you are including utilities in the rent, the Tenants are likely to squander the utilities so I would increase it a little more for that.

In your situation, I would divide the average use by three and then bump it 15 - 20%. Increase rent $120 and market it as utilities included.

Justin Calahan · Answer

Mason, I was wondering what you ended up doing for this? I'm going to be in a similar scenerio in Knoxville soon, and have been trying to figure out the utilities aspect.

Mason Jeffries · Answer

@Jared Mann it seems that most places do not include utilities. However, most places do not have the owner occupying half the home as well. It’s that dynamic that is throwing me off. I wish that I could simply let the tenant sign up with all the utility companies themselves, as if I wasn’t living there, but instead it seems I have to come up with a plan that is fair for both the tenant and I. I can’t find any comparable scenarios.

That is great advice. I will continue to check on that. Thank you!

Jared Mann · Answer

@Mason Jeffries

I would say you also have to know what is common for your market, look at a couple listings that are reasonable comps and see if they cover utilities, in my area the expectation is that water, sewer, trash are all covered, if I tried to pass those on, all potential tenants could easily find someone that does cover those.

Mason Jeffries · Answer

@Jon Reed that’s also a good idea. Thanks Jon!

Jon Reed · Answer

@Mason Jeffries I would say think twice before including utilities. A tenant who knows they do not have to pay electric, gas, sewer, and water will almost always keep their home super toasty in the winter and super cold in the summer. They will leave water running and just not care about their usage.

If you are for sure not wanting to split utilities then I would go the opposite route. Have the 3BR house put all the utilities in their name and then you reduce the rent to offset your average usage.

It will only take one month of them keeping their home at 75 degrees in the middle of winter with their bedroom window open to make you regret 'including utilities' in the rent. If you do want to include something then include just trash and internet. Those two are fixed expenses that the tenant can not run up each month.

Mason Jeffries · Answer

@Jon Reed @Lien Vuong  I appreciate the advice and I understand your points. I hesitate to do a split of some kind. I was in that position once as a renter and it bothered me. If I traveled for work and was gone for a month, I would hope to be billed for my usage, not for a percentage of the neighbors bill.  It’s tricky.

Utilities Included in House Hack??

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