Is it a good idea to include utilities as a landlord in LA, Ca?

Question

I'm aware of the extra steps I'll be taking by paying for the utilities and the fact that if the tenant doesn't pay rent, I am ALSO on the hook for utilities not paid. However, I assume they will all be legit write offs and wondering if in the best case scenario, it is more profitable in the end?

Jennifer T. · Answer

Another issue with providing utilities that people don't usually think about, is that a running toilet causes a huge water bill.  And, if you are providing utilities, you're responsible for paying that bill even if the tenant didn't inform you in a timely manner about the toilet.

Something like that happened to one of my tenants.  Her toilet was running for a few weeks.  She never bothered calling me about it...until she got an $1100 bill that was for ONE month of water!  That's how bad it can be and why I never pay for utilities.  Fortunately, SHE was the one who paid her own water bill and it was in her name.  I also live in a city that doesn't attach unpaid water bills to the property.

Unrelated to the water, I ended up having to evict her because she did not comply with my 30-Day Notice to Vacate.  When I reclaimed the property, I saw the Sewerage and Water Board had snatched the meter due to nonpayment.  That agency had a 2-year hiatus where they were not taking people's meters, but it had coincidentally ended right around the time of the eviction hearing.  She owed $3K in sewerage/water bills!  I could tell exactly what happened.  She wasn't going to pay that huge bill.  So, since she wasn't paying that one, she wasn't paying any more of them either.  The additional $2K in arrears was about the right amount I would have guessed for her total, after receiving the large bill.

Adam Martin · Answer

I would also vote to sub meter if plausible to avoid the liability.  Tenants are way more likely to conserve utilities if they are the ones paying and these bills can add up fast.  It is not quick to evict in ca so when they don’t pay and stay for longer periods you still have to keep the place habitable and they just may run up the utilities even more if they are mad they are getting booted out.  Including it in the rent looks like a good idea and you could even charge a premium over averages to make up for waste but remember not everyone will realize that the extra cost is built in and just think you are overpriced.  This may be one of the times where you have to spend money to make money.  There are plenty of posts about people looking to separate utilities but I haven’t seen one yet about someone trying to connect them all together.  You seemed ok in the original post to just write it off but remember that this is a business and that is an expense that will be taken out of your bottom line and utilities can really hurt you if not paid for a while especially if the tenant is abusing them.

Joseph McCrillis · Answer

Account Closed In that scenario, only one tenant would be on the bills with the city though, Right?

Joseph McCrillis · Answer

@Jennifer T

@Jennifer T. Solid example and point! Thanks!

@Adam Martin

@Jeannette Funes

I did consider sub meter, but I wouldn't be around to read it. If I go through the city and get a proper one, I'm told that they may not give it on a smaller lot like mine (I will investigate) and also I may be opening a can of worms since the GH was built here decades ago. The can of worms may be a lot of money bringing it up to current code if and if/where it isn't up to code. Thanks guys!

Jeannette Funes · Answer

Have you considered sub-metering the guest house?

Joseph McCrillis · Answer

Well...I’m looking for out of the box thinking for my particular scenario and maybe I should’ve given more information on my situation. I’m asking this question because I own a property with a guest house on it in LA. Currently the guest house is not separately metered for water or power. As it stands, I live in LA and manage the guest house as an Airbnb. In a few years I’ll be leaving LA and when I do, I’ll want the guest house and the front house to both be long term renters.

So looking ahead, I think it would be ideal to have separate utilities. That however can be costly and complicated.

As an alternative I thought that I can have the tenants just pay percentages of the utilities and let them work it out. For example the front house gets the bill and the guest house always pays X% billed by the main house.

As yet another alternative, I thought that maybe I just pay for all the utilities and rent both places out with premium rents that reflect the benefit of utilities included. I then realized that I might be able to write off the utilities and could be making more money by charging more rent for the luxury of utilities included as well as write off the utilities as an expense. Maybe this is a strategy I’m unaware of.

Is it a good idea to include utilities as a landlord in LA, Ca?

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