All Forum Posts by: Kyle Schreur

Well, let's start with your post - it's so vague, we have no idea if you're referring to a 1-unit or multi-unit property.

Also, you state, "I specifically requested to not mention anything regarding different ways of how to collect utility or rent" - yet your post is full of so much fluff that has nothing to do with your actual question! 

WHAT VALUE DOES THE BELOW ADD?
"I feel like that's a win win for both the landlord and tenant. It kinda creates a much smaller threshold for the tenant to save money if they were to keep an eye on their usage since I'm paying a large chunk of it, while also being able to keep any eye on how much they spend so it gives them that personal incentive to watch their usages. It benefits me for the obvious fact of bookkeeping and giving me predictable fixed costs."

Ask better questions, get better answers:)

@Kyle Schreur how are you charging your tenants rent currently?

Guessing you're not using any software or invoices, just depending on the tenants to remember to pay each month.

So, you will need to do something to notify the tenants about what their portion of the utility bills are.

Suggest:

1) You get a PDF copy of each bill
2) Type on each bill the split calculation for ONLY that tenant
3) Save it and email to the tenant.
4) Hopefully you're at least using a spreadsheet to track their rent ledger transactions.
(Google to find one)

There's more detail in my book, but here's a taste.

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.

@Kyle Schreur you can ultimatley do whatever you'd like, but whatever you do and whatever the arrangment should be put into writing.  

In general I'd not suggest the above regarding "contributing" to utilities.  It is common and customary acrossa almost all rentals except some A class office to pay your share of utilities.

Now you can make whatever arangment you'd like and work it out however you want with your tenant but if you are going to "share costs" I'd suggest keeping the utilities in your name, and then "back billing" the tenants for that share of their usage, but again thats a lot of work for really no gain in my book.

My recommendation would be to simply have the tenants pay all utilities.  If you want to offer a "rebate" of some kind after they stay up to date for certain amount of time, I'm more inclined to go that way, but in general theres no real good reason to put yourself as the owner in the middle of the utilities unless they aren't metered in a way to bill directly.