Utilities expense paid by renters typical... or wishful thinking?

Question

In doing early analysis on potential investment properties for buy-and-hold, I check Craigslist and other online tools to find rent rates for properties close to my prospect property.  These listings often will say that the owner/landlord pays utilities.  I am curious to know if all this BP forum chatter about utilities paid by renters is really just wishful thinking and not typical.  I know that the utilities expenses are not part of the VIMTM, but they really do add up to significant expense!

Also, I am wondering if it is realistic to push utilities back to an inherited renter when you take ownership of a property where the renters formerly enjoyed free utilities.  And if you get pushback from these renters when trying to pass utility costs to them, what do you do?  Any strategies?  Thanks for your time.

Mike D'Arrigo · Answer

@Keith K.

It's not wishful thinking at all. It's the norm. The only time a landlord show be paying for utilities is on multi family properties that are not separately metered which isn't good.

Marc M. · Answer

It's normal around the DC area as well for renters to pay utilities. Your inherited lease will dictate who pays what and if it says the landlord pays it, you're stuck until the lease termination date.

Rick C. A plumber can give you more information but I've had submeters installed at several commercial properties before. Nowadays, you can have them installed and with a phone line (and possibly internet connection, I'm not sure) get the readings remotely. Otherwise you have to visit it on the first of every month to get the readings.

Joe Fairless · Answer

I've been looking into this as well. Does anyone know of a good company that does the conversion from mass metered water to individually metered?

Rick C. · Answer

@Keith K.

Thanks for the info on the submeters.  I will look into installing before the current leases expire.

Aly W. · Answer

We have 2 SFRs, and the tenants pay for all utilities except city garbage collection. Like other areas, the water/sewer is lienable if the tenant doesn't pay.

For our rental condos, water/sewer/basic cable/garbage and often exterminating services are part of the maintenance fees we pay. The tenants pay electric.

Jeremy Tillotson · Answer

@Keith K. You said an inherited tenant, it may be part of the lease. In general I don't like paying utilities, but water is frequently included in any kind of multifamily. However we pay all utilities, including cable, but they are student rentals. Keep in mind if tenant doesnt pay water bill in many places the owner is responsible anyway.

Mike Nuss · Answer

@Keith K. utility bill backs for the Portland market are becoming more and more common. You'l see even more of it with increasing sewer costs and low vacancy rates. This could change with the apartment boom, but most of the economists I've seen have been saying the apartment boom is still trying to catch up to the lack of development from 07 to 11. Basically, the boom is still not going to catch up to demand. Of course we haven't seen that play out.

Owners have to pay garbage in multnomah county, but the law says nothing about billing back for garbage. That is an easy one because it is not a complicated billing system like water/sewer is here.

Keith K. · Answer

@Zach Davis  thanks for the tip about utilities in the Portland market.  I guess if I have to pay water/sewer and garbage, I can keep an eye on the costs and see if they are typical and, if not, start pushing back on the renter or at least checking for leaks.

@Derek B.  I think you're basically saying that I can get away with whatever the Market can support.  That's a smart point.  When I am running numbers on prospect properties and I am pulling rental rates from comparable properties nearby and THEY are advertising certain utilities being included, my assumptions should be that way as well.  This would be a more conservative assumption than assuming I can push the cost back to the renter when I inherit them and still be competitive in the Market at that rental rate.

@Rick Crabtree  @Bill Pohl thanks for your input as well.  I wonder if anyone has data on turnover versus whether utilities are paid for or not.  In other words, is paid-utilities an attraction that gets good renters to stay longer?  Perhaps it also gets bad renters to stay longer...

Zach Davis · Answer

@Keith K.  Standard in the Portland market is to pay water, sewer, and garbage and the tenants pay the other utilities. That being said, its totally dependent on your property and the micro-market you're in. Even though that's the standard for the market as a whole, it can literally vary from block to block.

If your inherited tenant is on a lease saying that you pay their utilities then you have to pay them. If not then you can ask them to pay whatever you want when you sign a new rental agreement with them. If you can't come to an agreement then you have a turnover and the new tenants sign your agreement. You just have to follow whatever your market will support.

Bill P. · Answer

@Keith K.

I'm on the other side of the coin. I only do SFHs and the tenants always pay all utilities. Of course, I would have to pay the water if the tenant skipped, but that is the cost of doing business.

Utilities expense paid by renters typical... or wishful thinking?

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