How to calculate utilities for your tenant with one meter?

[Vera Todoriko]

I am newby. We just purchased a two family house in a prominent area of RI, Barrington. We did some renovation in the kitchen, paint the walls and kitchen cabinets.  All 4 appliances are high end and brand new.  The family of four is applying now for our 3 bedroom appartment. We only live here for 1.5 month and its hard for me to figure out how much heat and electricity expenses I should include in the rent, because we only have one meter for electricity and one oil tank. We also have 6 mini splits for heating/airconditioning, 3 on our first floor ( for landlord) and 3 on a second and third floor for rentals. Also, should I include water expenses too?  I appreciate all your input.

[Karen F.]

Is your building a legal 2 or 3 family? Does it have 2 units, or 3 units?  Is there any way to separate out the utilities, and put 2 or 3 meters on it, or 2 or 3 oil tanks?

If not, do you have any control over the thermostats?  I am sorry to tell you this, but tenants will heat the place to 80 degrees in the wintertime, and be in shorts and a t-shirt, and cool it to 68 in the summer time.  They will do this while leaving the windows wide open.  This is why all our properties have separated out utilities, and the tenants are responsible for the utility bills.

Even if you were to put "landlord" thermostats in, to limit the heat (and it's difficult to do this, because tenants will hang a bag of ice on a landlord thermostat, to fool the thermostat into calling for more heat), the tenant could simply turn on the minisplit, for electric heat, and you're paying that bill, too.  Theoretically, you could disable the minisplits during the winter, so that they cannot be used for heating, and use a "dummy" thermostat in a prominent place, and have the real thermostat, set to 68, in a hidden place that they cannot access, but that reflects the temperature of the unit.  Then you'd know that they were not wasting your oil heating the outdoors, or creating a whole-apartment sauna.  With a SMART thermostat, you could probably arrange to have control of the thermostats by your own cell phone, for both the a/c and the heat.  To prevent abuse of hot water, go to a small tank, instead of tankless "instant" hot water.  Otherwise, the tenants' teenagers will be taking hour long hot showers.

But I digress. You wanted to know how much you should charge for units that include ALL the utilities? (You certainly cannot separate out the water charges, if you cannot separate out the electricity and oil - I'm sure you don't have 2-3 water meters on the property.) Here's a place to start. If you look at the HUD rates for a 3 bedroom Sec 8 unit in your area, they also will list utility allowances. But just off the cuff, I can tell you that in the Northeast, which has high heating costs and high electrical costs, Sec 8 would add about $400/month to the going rate in your area for no utilities included ("cold flat"). Honestly, your best bet for a tenant might be a very carefully selected Sec 8 family with only 3 people in it - that might be a mother and her son and daughter. Sec 8 pays really well for all utilities included units. Since you would be living there too, I presume, you could keep a close eye on what goes on, to make sure they don't move in additional occupants.

It would drive me insane, the utility wastage on my dime that the tenants would cause.  I would fix it up, and 1031 exchange it into a property with separated out gas, oil, electric.