Who Should be Responsible for Apartment Utilities? Owners or Tenants?
Letting your vacant apartment unit become somebody else’s home sweet home involves more than simply setting the rent amount. When you write the lease agreement, you’ll need to specify what comes with your tenant’s monthly payment.
As the property manager or owner, you naturally want to maximize your profits and income stream, so you’ll need to decide if including the utility bills in the rental property payment will make more financial sense for you. Some landlords just charge less and let the tenants pay for their utility bills, while others shoulder the apartment utilities and tack on the extra fees.
There are advantages to both scenarios, and what works best for you depends on your objectives and situation. To help you make the best decision, let’s see how having the utilities included in the apartment rent typically goes.
Does Rent Include Utilites?
In the US, the majority of apartments and some single-family rental properties come with some utilities included in the monthly payment. Far less common are apartments that cover all the utilities. Being the property owner, you have the freedom to set the type of arrangement you’re comfortable with. But generally, rental units in the country belong to the following categories.
All the utilities are included
Also called the “all bills paid” arrangement, this works for tenants who want to eliminate paying utilities from their list of monthly chores. So instead of taking care of their utility bills, they write you a check that covers the payment for the rental unit and their utilities.
This apartment-with-utilities deal is more common in apartment buildings where the tenants share utilities with others.
No utilities included
In contrast with the all bills paid deal, a no-utilities-included apartment means that the renter pays for all utilities. However, if the tenant takes care of the utility bills, the different utility providers must be separately metered to ensure that all the bills paid by the renter reflect the actual consumption of his or her unit.
Some utilities included
Some utility costs, such as garbage collection or sewer services, are problematic to split among the different tenants in an apartment complex. Meanwhile, water and electricity usually come with separate meters for each renter. Thus, the arrangement where some of the utilities are included in the rent amount is the most common among properties for rent.
Utilities included but with some limits
Some apartments come with utilities included but not the whole amount. For example, you can cover only up to $50 of your renter’s specified utilities. Putting a cap on the included utility costs offers your tenant the benefits of paid utilities but protects you from renters with wasteful habits.
Utilities to Consider
So what utilities should you include in the monthly rent? Here are some that many landlords typically cover. Take note that the utility company you work with influences the average rate for the monthly expenses.
Electricity runs almost everything in a home, making it one of the most important and usually the costliest among the utilities at around $70 a month. That’s exclusive of air conditioning and heating. Add approximately $65 to your expected electric bill for cooling and the same amount for heating.
In most apartments, this fuel is used for cooking and heating. Water heaters also typically depend on this power source. Expect a bill of around $63, although it may be more depending on where you live and what it powers. If your unit relies on natural gas only for cooking, the bill naturally goes down to between $10-20 a month.
You can’t let garbage accumulate. Not only is it unhygienic, but it can also lead to pest problems. As such, trash collection is one of the rental property utilities you’ll need to set up. The city government typically takes charge of contracts related to this utility service. It will usually cost around $20 a month, more or less.
Water & Sewer
Water rates vary, but on average, the water bill usually comes to around $50. Meanwhile, sewer payments will set you back $16 a month at the least.
In cases where these services don’t have individual meters, the total bill gets divided among the tenants in the apartment complex.
Internet, Cable, and Telephone
These are classified as bundled utilities, meaning they go together. They may not be considered essential services but most renters need them in their daily activities. The costs will depend on the utility company you choose and also on the subscription plans. For example, faster internet speeds come with higher rates. Depending on the various factors, these services take up around $100 of the monthly expenses.
Security systems vary in what they include, from the basic security cameras to those that notify about the presence of carbon monoxide. Depending on the utility company that provides the monitoring system, the security equipment price ranges from $199 to $399, and the monthly monitoring services fee falls between $25 to $50.
The Benefits of Including Utilities in Rent
Aside from letting you save money in some cases, offering an apartment with utilities included to tenants provides you with some advantages.
Acquire Better Tenants
Other landlords discovered that offering apartments with utilities included in the rent tend to attract higher quality tenants. Moreover, these renters are usually easier to manage because they’re the types who look for stress-free living situations.
Having just one monthly bill to pay also means the tenants have an easier time attending to their expenses. The benefits for you? They typically pay on time or close to the due date.
Receive Tax Benefits
If you include utilities in the rent, you usually make a profit. However, you’ll also need to pay more taxes because you made more money, right? Not really. You can generally take off the cost of providing utilities from the taxes you pay. But consult an accountant just to be sure of the tax benefits available to you.
Of course, you’ll need to tack on the commonly included utilities to the rent amount. But on top of that, you can charge your renter a bit more for the convenience of not having to bother with their utility bill payments.
Get Credit Card Rewards
If you pay the utilities using your credit card, you’ll rack up credit card reward points without spending a fortune. Just make sure that the credit card company doesn’t impose a fee for paying via credit card.
Utilities are Tax Deductible
Utilities are tax-deductible expenses if you cover them in relation to your apartment rental business. As such, you still get to add to your income stream if you pay for your tenants’ utility expenses.
Budgeting is so much easier if you have to deal with only one monthly bill, raising the chances that your tenants will pay on time. But it’s not just the renters who benefit from paying for everything in one go. You also get to enjoy the added convenience of having the payments for the rent and utilities settled with a single interaction with your tenant.
Provide Ease & Convenience
Renters usually appreciate the convenience of not having to set up their own account before they move in and then discontinuing the contract when they move out. On your part, covering the utilities will speed up rental turnover since tenants can move in and out with ease.
The Drawbacks of Including Utilities in Rent
Like with most things, a utilities-included arrangement also has some drawbacks.
Unforeseen Utility Price Increases
Utility prices aren’t carved in stone. They rise and fall depending on several factors. You might get a windfall if the rates plunge (which rarely happens!), but you’ll be at the losing end if the rates swung upwards.
Sure, you can negotiate with your tenants, but that can sometimes lead to disagreements.
Monthly Consumption Uncertainties
Predicting your tenant’s monthly consumption can be a bit tricky because factors such as the season of the year can affect utility usage. You also can’t tell in advance if your renter plans to purchase more appliances. For example, a new entertainment system or a larger capacity washer can lead to higher utility usage.
Shouldering the Tenant’s Liability
If your tenant fails to pay on time, you’ll need to shoulder the responsibility or face the consequences. Unfortunately, even if your renter defaults on the rent, you’ll need to keep settling the utility accounts.
Less Incentive to Conserve
Because they only pay a fixed rate for the rent, tenants sometimes lose the incentive to employ conservation measures. For example, they’ll put off fixing leaky faucets or fail to turn off the AC when they leave the premises. Why bother? They’re not paying for the extra consumption anyway.
Fixed vs. Variable Pricing
When it comes to determining the amount to add on to the rent to cover the utilities, you have the option of setting a fixed price or one that can go up depending on the tenant’s consumption.
Fixed rates are easier to understand for the tenants but can be disadvantageous for you in some cases. On the other hand, variable pricing will more accurately reflect the cost of the utilities but will likely require you to negotiate with your renter when the fees go up.
Making Upgrades Toward Energy Efficiency
Upgrades that make your unit more energy-efficient usually involve high upfront costs. However, you’re bound to save money over time because of reduced utility bills. Moreover, the improvements can be considered as depreciation, and the tax deduction will help lessen the economic impact of the upgrades.
You also don’t have to spend a lot of money to make your apartment more energy-efficient. Simple things like installing LED bulbs, changing the air filters in the HVAC unit, and weather-proofing the doors and windows will lead to lower energy consumption.
Other Things to Consider
When making the lease agreement, you’ll need to set policies addressing specific situations that usually lead to higher utility costs. These scenarios include the following:
- Extended guest stays: It’s not unusual for a tenant to have guests. But it’s an entirely different matter if that guest remains forever and technically becomes an unofficial tenant. Some property owners set a limit on how long a guest can stay, after which the tenant has to pay extra for utilities.
- Airbnb: Depending on where you live, you’ll need to abide by the rules set by the city regarding short-term rentals.
- Operating a Business Out of a Rental Property: Using the apartment as the base of operation for a business typically increases utility consumption, so stipulations in the lease should include this situation.
- No Per Person Fees: You can’t charge a fee based on the number of people that will occupy your apartment.
You need to ensure that your property is comfortable, safe, and habitable. Facility maintenance will help you achieve this goal. Keeping your apartment unit or complex in good condition entails a list of repair works to keep the plumbing and HVAC functioning properly. You’ll also need to see to the cleaning, pest control, and groundskeeping.
Turning off Utilities
We’ve mentioned time and again how essential electricity is, and as the landlord, it’s your responsibility to make sure that your unit is habitable. As such, you can’t turn off the utilities on your tenants even you’re in the process of evicting them.
A minimum Temperature of at least 65 F
Tenants have the right to feel warm and comfy during the cold months. Some states require you to keep the thermostat set at 65 degrees for this purpose. Incidentally, it also prevents your pipes from freezing.
When moving house what do I do about gas and electric?
If you’re moving out, take a final reading before leaving and forward the information to your utility provider. Keep a note of the figures in case you disagree with the last statement they’ll be sending you after you’ve moved
Who is liable for utility bills?
The agreement between you and the tenant determines who will take care of the utility bills. If the lease does not explicitly state who pays for the utilities, the renter usually shoulders the responsibility. This holds particularly for services with separate meters like water and power.
What appliances use the most gas?
Along with electricity, natural gas is commonly used to power a home. When it comes to consumption, space heating involving both air and water burns the most natural gas.
How much electricity does a 1 bedroom flat use?
The answer depends on the size of the room. A typical apartment bedroom that measures around 750 square feet will usually consume approximately 750 kWh per month. A larger area will naturally require more electricity.
Is It Worth it including all Utilities into Rent?
Your goals and situation will determine whether it’s worth including the utilities in the rent amount. You can make a few bucks more if you take away the hassle of paying the bills from your renter. You also increase your chances of getting more prospects.
On the flip side, dealing with utilities can be bothersome and stressful if you’re unlucky enough to get challenging tenants.
So it’s really a matter of weighing the advantages versus the disadvantages. To simplify matters, you can ask yourself whether the extra income from including the utilities is worth the additional headache for you.