How to split utilities between tenants

[MarieChele Porter]

Hey BP,

Happy New Year

I am in process of renting out my first house hack but I'm not sure of how to split the utilities. It is a single family home with attached in law suite but no separate gas or electric meters. I realize that even though this is a single family home I can't have them pay all the utilities on their own. The SFH is a 3b2b and the in law is 1b1b. Logically, the people in the SFH will use most of the utilities being that it will most likely be a family.

My thoughts were to keep all the utilities in my name and do some sort of bill back on the next months rent with the in law paying either a flat rate or a lower amount of the costs. So my questions are, should I keep the utilities in my name? How should I separate utility costs? What have you done in a situation like this? Or should I have both tenants pay a flat rate and I eat the overages? Just trying to be fair while keeping in mind my own costs.

Thank you,

MarieChele

[Nathan Gesner]

There are different methods and they can all work.

My preference would be to keep utilities in your name so you have control of them. Split the bill based on the number of beds/baths. You have a combined total of four bedrooms and three baths, so I would divide the bill by seven. Give 5/7ths to the main unit and 2/7ths to the small unit. However, this requires you to calculate costs every month and then tell the tenants how much they owe. It takes extra effort, is prone to mistakes on your part, and it's hard for the tenants to budget with. 

My recommendation is to see if the utility providers will put you on an Equal Billing (or whatever term they use) where they base your monthly bill on historical averages. They look at the previous year to see what a monthly average was, then that's what you pay each month. This eliminates your need to calculate and tenants can make the same payment every month. After one years, the utility provider will adjust based on actual use, so you may see a small increase/decrease each year.

Another tip: when tenants don't see the bill or pay it directly, they tend to waste utilities. I figure out what their monthly bill will be, then I increase it 15% and that's what I charge them.

Example: Electric, water, sewer, and trash are $250 a month and natural gas is $75 a month. Total of $325.

Main house: $325 / 7 = $46.43          $46.43 x 5 = $232.15        Add 15% = $266.97

I would round it up or down to the nearest dollar and that's what they would pay for utility each month.