Pros & Cons of Counting Utilities with Rent for Your Investment Properties

One of the various factors that must be evaluated when considering an investment property is the cost of utilities. Generally, with every investment property, there will be some utility costs linked with it. From time to time these costs may be minimal, as they may be with a single-family rental. Other times, they may be substantial, such as with a multi-unit apartment building with a central boiler for heat and hot water.

As landlords, we want to take full advantage of our cash flow. Maximizing cash flow often means passing on those utility costs to the occupants who use them by including utility costs with the rent. But should you comprise utilities with the rent? The answer to that question will depend on numerous aspects. Here are some thoughts on the topic.

Why Include Utilities?

§  Your building is not distinctly metered. I find this a lot in older buildings, exclusively those that were single-family houses that have been converted into multifamily units. It is simply cost excessive to retrofit and meter all of the units separately.

§  You don’t want the double bother of sending out utility bills and then collecting the utility payments. A utility repayment program that divides up values on square footage can really be a pain, especially when tenants complain that “they did not use that much” etc.

§  You can potentially make a little more money. I have talked with landlords who include the conveniences in the rent and charge a bit more for the service, even if the units are separately metered. This can improve their cash flow.

§  You can’t charge a “per person” fee, as this may be construed as unfair against larger families.

Why Not Include Utilities?

§  It makes your life easier. If you can involve your renters to get utilities in their own name, you do not have to bill, collect payments or take the phone calls. It just makes your life easier.

§  Your utility expenses will increase. When utilities are counted in, there is no incentive for the tenant to preserve. I have seen it time and time again where the renter has the heat turned way up and the window open to cool it off.

§  You spend less time dealing with the homegrown utility. This can be a real time and annoyance saver.

While you can hypothetically make a little more money including utilities, their inclusion can be a real killer of your time and can grow the level of stress in your life. For me generally, I am looking for more spare time and less stress, so it is a no brainer. I will hardly look at buying non-separately metered possessions anymore, nor do I generally include conveniences in the rent. But that is just me.