Bundling utilities into rent?

Question

Hi all. I'm considering rehabbing a rental property to make it as energy efficient as possible, including replacing appliances and converting the kitchen to induction - which could (in an ideal world) bring down energy costs to almost zero. If I were to ensure zero to very minimal utility costs, I could then market the property as "all utilities included" and assume the utility bill myself. Do you think this is a compelling marketing tactic to attract renters? Would they pay a small amount over market rent if they knew they'd be saving money in the long-term by not paying utilities every month?

Just wondering if this could be a sound marketing tactic for renters! Appreciate all insight and thanks!

Jefferson Simmons · Answer

Hi Sophie! This is a question I have wrestled with on several deals. After replacing an entire HVAC system on a fixer-upper, I thought I would bundle in utilities to make it easy on my tenants and they would pay the same amount every month. Every time I have done this it has come back to bite me. I may stop by the property to change a filter, and every light in the house is on, the tenants take hour-long showers, and keep the thermostat wherever they please. I had college students living in a house and I found they all had mini fridges in their bedrooms when I inquired how they had run up a $450 electric bill. Sure, sometimes in the spring and fall when the weather is mild I have made a little money on flat utility fees, but in the long run as we expand our portfolios, it's simpler and less risky to have the tenants take care of utilities themselves. They'll be much more conscientious of how they use their resources too which is obviously a bonus.

Dan DiFilippo · Answer

@Sophie Latapie I'm moving in and mining Bitcoin!

More seriously, though, I wouldn't go to crazy over it all.  Energy efficiency is nice, but in terms of rent,, you may find it's just simpler to do it the way everyone else does.  And you can market the home at a lower price.

Tracy Streich · Answer

@Dan DiFilippo I agree.  Don't over think this.   Why put an X factor in the equation over which you have no control.   Rent the house for the going rate and let them worry about the utility bill.   Lower bills maybe they stay longer and you spend less on turnovers.

Howard Herrington · Answer

Hello @Sophie Latapie, have you tried looking at what other landlords are doing in your area?  If you live in a competitive market where renters naturally have utilities included, then you "MAY" consider it but unless the cost of the rent is considerable enough to offset the utilities and still cashflow, I would put it on the renters.  I just had a situation where I had been paying my tenant's utilities and upon time to renew his lease, informed him that he would have to pay them moving forward and he decided to vacate instead.  I lost a great tenant because he could not afford the utilities in addition to his rent and in my area, typically utilities are included.  So again, I say research your area to see what others are doing and determine if the cost of making the unit energy efficient is a better benefit.

Michael Robbins · Answer

@Sophie Latapie In the world of eviction moratoriums we now live in I would not include utilities (or anything else) with rent. If anything, it might be worth separating a lot of our expenses from "rent."  For example, separate landscaping service, utilities, cable, etc... I think we are in an environment of risk reduction to some degree.  Otherwise, in a normal market, it could be a good idea, but primarily for short-term rentals.

Cassandra Vickers · Answer

@Tanya F. How do you know if the tenants has gone over the $45 allowance? Do you have a single tenant and an electric meter that monitors that single tenant? Or do you just equally split the electric bill amongst the tenants? Ex. you have a bill of $150 and you have 3 tenants, then the allowance would be $135 (45*3=135), so each person would be equally liable for the reminder (150-135=15) and each person would be charged 5 dollars (15/3=5) to cover the amount over the $45 allowance? I could see the tenants being angry that they did not cause the overage. Or do you do it another way?

Enrico Angella · Answer

@Sophie Latapie you can definitely market your property as energy efficient, and some tenants will definitely prefer your property over other less energy efficient.

I wouldn't charge a flat fee, because you will most likely find tenants that don't care about saving energy or water. We know how a lot of people use and consider free resources. Also, there would be so much energy waste in such a scenario, not very good for the environment either!

In my opinion, you should definitely upgrade your property and make it more energy efficient, but always stay within a budget. Don't overspend on items that your competitors' properties don't have or that are just too much for the rental market you're in!

Having said that, I like your vision. When I have to replace an appliance or things like a/c and windows, I always try to replace those items with energy efficient ones.

cheers

Tanya F. · Answer

You don't say where you are. In our market, it works quite well. We have solar panels and advertise for tenants who value energy efficiency, and we get them. Those who value efficiency tend to take great care of the property (in our experience). Example- recently a shower head cracked and the tenant contacted us to report right away. He delayed showering rather than waste water :-)

Based on years of usage data, we have a $45 monthly electric allowance (built into the rent) and if the tenant goes over, they pay the difference. In summer, the solar panels produce well and they pay nothing. In winter they pay us the difference.

Bundling utilities into rent?

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