How To Handle Utilities At Your Investment Property
Anyone who has ever had to pay for housing knows how costly utilities can be. As a landlord, how can you ensure that utilities don't impact your bottom line?
There are three options for managing utility payments on investment properties. However, it would help to consider other considerations to maximize your return.
There are three ways you can handle utilities in your rental
You can include utilities as part rent
The flat fee is usually per month, and you retain the utilities in your name. You have complete control over the utilities. However, you will need to do extensive research to figure out how much to increase the rent each month. Your monthly rent will be higher than comparable properties because your utilities are included in your price. Renters look for properties with a specific price in mind when they search. Your property may not be available to qualified renters because they will filter out your search. To ensure that your fee for utilities is legal in your region, you should consult a local lawyer and your local building inspector.
A monthly utility fee is charged:
This keeps your utilities in your name and gives you complete control over your property. You are responsible for managing the additional billing and bookkeeping. The amount of the monthly fee will vary depending on what is in your lease agreement. You should always consult a lawyer to ensure that the prices you charge comply with state and local laws.
Tenants should be responsible for their utilities
Tenants are responsible for paying the utility bills and putting them in their names. Landlords may use several methods to get utilities in their name, mainly if it isn't possible to put in the tenants' name.
Each option has its pros and cons. To get the best return on your investment, you want to make sure that all costs are covered.
It doesn't matter how you choose to pay utilities; it is important to make sure that the tenant signs the lease agreement. This will ensure that there are no misunderstandings if someone misses a bill or is late with a payment.
It is essential to consider the type of property
Are you a homeowner who has recently purchased a duplex or converted an older house into a three-flat? It is essential to know the type of property you have because meters are crucial for utilities. The way your property is metered will affect how much you charge utilities. A meter is usually used to measure the entire property of an older house that has been converted into several rental units. Splitting meters may not be feasible due to cost. You will need to account for utility usage and pay a monthly fee in order to recover your costs. You can usually have a sub-meter installed on newer properties. No matter what solution you choose, make sure to calculate your monthly utility costs. A good tenant will be interested in this information. To ensure your solution is compliant with state and local regulations, consult local authorities and a lawyer.
How much risk are you willing to take on your investment?
Although it might seem obvious to include a monthly utility fee in your rent, many variables can complicate this. You retain control of your property but also take on liability and risk. Even with the best tenants, it is possible to lose control. Consider a flat $50 monthly utility fee for water, gas, and electric. These charges are clearly stated in the lease agreement. What happens if your tenant uses $250 per month in utilities - running up electricity and water bills? Your return on investment will suffer if you are paying $200 per month. You are responsible for paying the utility bill if your name is on it, even if your tenant skips a bill or is late.
Qualified tenants may place utilities in their names
Although some tenants might be hesitant about changing their utilities to their name, this arrangement is often worth the extra effort. This arrangement reduces your risk and creates a sense of responsibility in the tenants. Flat fees for utilities are a great incentive for tenants to save energy and close windows when hot. It's almost like a buffet of utilities! They will likely be smarter about using utilities and report any issues like a running toilet, or leaky windows. Some tenants might not be eligible to receive the services if they have a history with no payments from utility companies. This information will help you determine whether it is worth taking on when you search for a new tenant.
What is the market norm?
Research your market before you decide which method is best for you. Search for similar properties in your area to find out how utility payments are handled and what they charge.
