How to distribute utility bill in a single family home? (House hacking)

Question

I am currently house hacking and have a few tenants/roommates living with me. I currently pay the water and internet bill out of pocket and only request rent and the electric bill be paid for by the tenants. My house is wired with only one meter so I cannot get a more specific consumption amount for each tenant (even though there is an efficiency unit). Given this limited position the utility bill is split evenly across the tenant as this is the only equitable solution I can think of at the time. I have a comprehensive lease with all my tenants that states they must pay for utilities but not specifically that it will be divided exactly like this.

A newer tenant (lives in efficiency unit) is displeased with this set up and is voicing this after notifying them of the first utility payment bill. I explained to them my limitations and approach but they threaten to not pay because they do not believe the bill reflects their usage. I am open to an alternative solution but they seem like they using intimidation tactic via email like call my strategy theft (something I take offense to) and that they will not pay and I should figure out the impossible. I do want to work with them but their attitude is making me feel disrespected.

How would you handle this?

Nathan Gesner · Answer

HOW TO SHARE UTILITIES 101

You have a property with two or more units and the utility meters are shared. There are a few options.

1. Pay to separately meter the utility. This can be very expensive and is usually the worst choice because you can't justify the cost.

2. Charge the tenants a higher rent rate and include utilities with their rent. This is the simplest method, but it also means your tenants are more likely to abuse the utilities by leaving windows open with the heat or A/C running, leaving lights on, ignoring the toilet that constantly flushes on its own, etc.

3. Pay the bill yourself, then reimburse yourself by charging the tenants based on a formula. This takes a little more work, but it's the fairest and reduces the likelihood of tenants that squander utilities.

If you choose #2 or #3, there are considerations:

Start with an average. Use varies throughout the year. Heating costs go up in winter, as does electricity due to the reduced natural light and more people indoors. Electricity can also spike in the summer with A/C. Contact the utility provider and get a historical average based on the last year of use. It won't be 100% accurate, but it will be close enough. I recommend you do this annually to adjust for utility increases and other variables. If your average heating bill is $150, you may not collect enough in the winter months when the bill reaches $225 but you'll collect extra in the summer when it drops to $65. If you base your tenant charges on the historical average, you should come very close to collecting the entire amount over a one-year period.

Charge a higher rate. If the water bill is $100 a month, increase the price by 20% (or whatever you decide is fair) to compensate you for the time required to split and bill and to cover additional use when tenants squander the utility. If the bill is $100 a month split between four units, increase it to $120 and charge each tenant $30.

How to calculate charges. Don't make it more complicated than it has to be. If you have four 2-bed/1-bath units with the same appliances, split it four ways and call it a day. You can make minor adjustments based on the type of appliances (dishwasher, clothes washer and dryer, air conditioning, etc.) and the size of the rental. If Apartment A is a 2-bed/1-bath with a washer/dryer and Apartment B is a 1-bed/1-bath with no washer/dryer, Apartment A should pay a higher rate. Another option is to split the cost based on the number of occupants in each unit but this also means you'll need to adjust the charges as tenants move in/out, so it requires more work and I wouldn't recommend it. I recommend a simple spreadsheet to check your math and it will make it simple to adjust each year.

End the complaints. Tenants may complain about your method of calculating how much each unit pays. They think it's unfair because they only shower once a week but can hear the upstairs neighbor showering twice daily. You can end this by showing them an actual utility bill. Why? Because a large percentage of the charges are base fees that do not change based on use!

I just looked at a utility bill with a total charge of $184.12 but $116.50 is from base fees! If I divide this bill by four units, each tenant would pay $46.03. If they were separately metered, each tenant would pay the $116.50 base fees and their individual use, which would be 3x higher than what they pay when sharing a meter.

There are many options, but don't make it more complicated than it needs to be. Tenants save money when using a shared meter, so there's plenty of room for error when calculating how to distribute the charges.

Jeff White · Answer

@Jonathan Baptiste It is too difficult to bill back people with rent by room style of house hacking, you will be unable to make it "fair" for everyone since some people take more showers than others, some people cook more than others, so how would you bill back those renters, or if one renter is gone for two weeks visiting family?

The easiest way is to take the rolling average of the utilities for the last 12 months, and then include it in future rents for your roommate tenants, that will keep it simple and fair.

Also, most utility companies can provide you the 12 month averages.

Theresa Harris · Answer

Simply divide it evenly among the people living there. Are some people living in a room and sharing a kitchen while another has a suite (ie room with a separate kitchen and bath)?  you mention the person who is complaining is now and living in an efficiency unit (to me that has everything in it-ie fridge, stove).  If that is the case and the other tenants rent a room in the space shared by you, I'd tell the one tenant that you've divided it evenly between everyone, so they are actually paying less than their usage as you haven't factored in the separate fridge and stove that they use.  I'd tell them the lease states they pay utilities and if they aren't happy with the situation, then they are welcome to give notice now and move out at the end of Feb with no penalty.

going forward, include how the utilities are divided in the lease (eg 4 people living there, each pays 1/4 of the utilities).

Khalid Bryan · Answer

@Jonathan Baptiste I would make it as uncomplicated as possible. I would just factor what you feel their portion of the water bill or whatever utility should be based on the monthly average and charge it as additional rent. Avera

He it as a flat number as a surcharge monthly. For example, I will give a notice that a $50 surcharge for water will be added to the rent each month and if unpaid should be considered as unpaid rent. Mind you I’m not an attorney, so you definitely want to have your attorney draft this portion of the lease or the lease itself altogether

Jonathan Baptiste · Answer

Hi Kevin,I did not initially because I had just purchased the home a few months ago, so I had no estimates on what the monthly / annual expenses would look like. And I did not want to try to estimate it through calculating averages because you never know how much people will actually use in reality. Possibly in the future after gaining more insight on what these expectations are like I can include it into the rent.

Tim Baldwin · Answer

Since there is no way to determine individual tenants' usage without a sub-meter, you have to have a fair and equitable formula. There are a variety of formulas you can use, but to me, here's the bottom line from a legal perspective: as long as the utility cost sharing provision is not unconscionable, and the tenants agreed to it, they are responsible to pay their share of utility bills.

I don't know if your lease agreement defines utility charges as "additional rent" or not. If it does and the tenant doesn't pay his share of utilities, you can deliver the 3 day notice to pay or vacate to enforce the tenant's not paying additional rent. If your lease doesn't, you'll need to use a 7 day notice to cure. Best of luck!

Gayle Eisner · Answer

Greetings:

What I have been doing with my 1br ADU has been charging a ratio by square footage & circumstances.  So for example, if my 3 br house was 1000 sq ft with one tenant and the other house is 500 sq ft with one tenant, I have been charging smaller 1/3.  The house larger 3 br sometimes have guests, esp during the holidays & usually chilly here.  Lgr home has all electric, the other electric and gas. So I only charge ADU 1/3rd.  It seems to work, no squabbles past 2 years.

However, currently here in CA, PG&E is getting extremely expensive, that is why do not include electric/gas in their rent.  Only garbage, water/sewer & Wi-Fi.  Unfort. water is getting very expensive as well but I have not altered billing at present.  Rents have not gone up much to justify a larger rent pmts.  Also have great bill paying tenants...Plus, psychologically, I think if a tenant thinks he's paying x, including utilities it doesn't SEEM as much... :)

Also, when I rented rooms on another one of my  properties, there were always utility squabbles.  So I just let the tenants figure it out among themselves (I paid trash/water) and it worked great 95% of the time.  That way I don't get stuck with the high PGE rates.

Jonathan Baptiste · Answer

Hi @Jay Thomas, I looked into the additional meter. After chatting with the utility company they said since it single family it is most likely not electrically wired for that. So I would most likely need an electrician on top of the installation fee from the city. Dividing the bill by square footage is an interesting approach, but given that they occupy 1/3 of the home I don't think it will make a difference. Finally a fixed fee could work, but same underlying issue exist which is getting an accurate estimate of their consumption.

I understand they're perspective, but I just feel like the tenant is just trying to cut corners. This is a fairly expensive area and the amount does not seem unreasonable to me. If they are not prepared to live in this area that is not my responsibility to ease it for them.

Jay Thomas · Answer

Even if the tenant's tone is a bit challenging, try to see things from their perspective—they might genuinely believe they're paying more than their fair share without individual meters. Now, consider some solutions: submetering is an option, allowing for individual usage tracking, but be cautious about upfront installation costs and regulations. Alternatively, a fixed monthly fee based on estimated usage or dividing the bill by square footage occupied could simplify matters, though fairness might vary. For a more involved approach, suggest that tenants track their appliance usage for a more accurate and cooperative adjustment of payments.

How to distribute utility bill in a single family home? (House hacking)

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