How to split utilities between tenants
MarieChele PorterPro Member
San Francisco, CA · Member since 2016 · 193 posts · 98 votesHow to split utilities between tenants
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
5yThere 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.
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7 Replies
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes5y
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.
The DIY Landlord Book4.7243 Reviews - San Francisco, CA · Member since 2016 · 193 posts · 98 votes5y
Ahh this is such good information I never thought of dividing it up by room numbers and didn't know about the equal billing either! I will make some phone calls to the utility companies and ask about this to see what's the best choice. Thank you for your input!
Originally posted by @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.
Thank you for this. The usual advice is raise the rent and include utilities, but then you have to market a rent that looks too high. With your strategy you list at market rent and then explain fixed utility costs.
Do you notice less waste of utilities even though the cost is fixed? Have you run into any challenges with this strategy?
- 5yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Nathan is right. Split it based on number of bedrooms or square footage. As for raising the rents and including utilities, I wouldn't for a few reasons. First if people aren't paying for it directly they will use more water or electricity. Second when looking for rentals, people skim the price first and don't look at whether or not it includes utilities. So a place renting for $1500 including all the utilities will be less desirable than one listed for $1400 plus $100 utilities. Yes I know the numbers are the same, but too many people don't get that and only focus on the $1400 vs $1500 part.
- San Francisco, CA · Member since 2016 · 193 posts · 98 votes5y
Originally posted by @Theresa Harris:
Nathan is right. Split it based on number of bedrooms or square footage. As for raising the rents and including utilities, I wouldn't for a few reasons. First if people aren't paying for it directly they will use more water or electricity. Second when looking for rentals, people skim the price first and don't look at whether or not it includes utilities. So a place renting for $1500 including all the utilities will be less desirable than one listed for $1400 plus $100 utilities. Yes I know the numbers are the same, but too many people don't get that and only focus on the $1400 vs $1500 part.
I definitely like that idea and will see which of his ideas work best for me. I've definitely been in homes with numerous people that you here use the words "let the water run we don't pay for it anyway" so that wasn't an option for me...
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes5y
Originally posted by @Aaron F.:
Do you notice less waste of utilities even though the cost is fixed? Have you run into any challenges with this strategy?
It's hard to explain everything in one post. If I include utilities in the rent or charge the tenant a set amount every month to cover utilities, I also include a ceiling. For example, the tenant may pay $125 per month for utilities but I include a clause that says they will have to pay for anything above $150. If the toilet is running constantly and the bill jumps $200, I pass that additional cost on to the responsible tenant.
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