Pros/Cons of landlord *choosing* (gasp!) to pay all utilities

[Rachel Schlabach]

Choosing to pay utilities seems antithetical to most advice I've heard, but hear me out.

My husband and I just bought our first investment property. I am a nurse, he is a surgical resident. As the one with more free time, I will manage the duplex. We have connections with the incoming class of residents and several have shown interest in renting from us. The residency programs at the hospital range from 3-5 years. 

I had the idea to pay all the utilities and charge the renters appropriately. I've seen first hand how time consuming residency is, and thought this might be appreciated by the residents that they have one housing related bill/month- completely worry free! 

Part of what prompted this is to separate electric, I'll have to pay quite a bit more than the required electrical work of upgrading the service. Gas is already separate.

I look forward to any advice, as I'm new to the world of investing :)

[Greg Weik]

We actually require landlords to include utilities when there are not meters for each unit.  There is no equitable way to split the cost otherwise. 

My advice is to include the utilities as you planned, but two things:

1) Do not make the utility charge a separate charge.  Rent is rent - do not have rent as $X and utility charge as $X.  Logistically, this could make your worst-case-scenario of having to file an eviction, extremely difficult. 

2) You may consider adding a rent escalation clause at 3, 4, or 6 month intervals depending on overall utility usage.  Assuming you have a 12-month occupancy lease, you could indicate the rental charge can "reset" at periodic intervals based on utility usage.  Similar to an adjustable-rate mortgage.  Be transparent and share the utility bills so the tenants understand any change in rent.  Consider even dropping rent $25/month or so if utilities are used lightly. 

Good luck!