What Utilities Should You Include?
Many new landlords and property managers don't know what utilities to include in rent, much less the thornier issue of how much to charge. There's no right answer, but read on to learn what you should take into account as you weigh your options.
The Argument for Including Utilities with Rent
You're likely to get more interest in a property if you include utilities. Many tenants believe that it's less expensive to them when utilities are included in a lease, making it more attractive and giving you a broader range of applicants from which to choose. Also, note that tenants often perceive included utilities as a bonus, even if it may be more expensive.
Why do some landlords not include utilities with rent?
Including utilities can be a headache. If you're having trouble staying on top of paperwork, your tenants might suddenly call angry about why the power's cut off. (If paperwork is getting to be a problem, consider using a recordkeeping program or spreadsheet to stay on top of it.)
Naturally, a higher utility fee will raise the rent, and if the property is already pricey this may break the bank for a lot of tenants. For that reason, you'll often see landlords not including utilities on higher-end properties.
Which utilities should you include?
If landlords choose to cover utilities, they'll usually pick basic utilities that have predictable costs, like gas or trash pick-up. Covering water bills offers a bonus for a landlord; if there's a leak on the property, it might show up on the bill, whereas a new tenant looking at the same bill might not notice. Covering electricity is more rare. Since electricity is metered, many tenants won't be incentivized to use electricity wisely, particularly during the summer months in properties with air conditioning. Most landlords don't cover internet or cable, except for properties that cater to younger tenants.
Fixed or Variable? And How Much?
One of the biggest determinants of whether you should go for a fixed or variable utility fee is how much you're willing or able to communicate with your tenants. Choosing a variable fee means you need to let your tenants know how much to pay each month. If you don't have the time or energy to put into that kind of regular contact, consider using a fixed rate. Additionally, some landlords choose to pay for only part of utility bills, leaving the rest to the tenants.
As mentioned above, many landlords add a little extra to a fixed utility fee, to cover the convenience of them handling the bills for the tenant. Different jurisdictions have different laws about how much can be added to these bills, so check before you do this to see if this is allowed, and have much. To prevent fraud, most jurisdictions request that you hold onto utility bills for a certain amount of time and disclose them to the tenant when requested, or that you even send a copy of the bill to the tenant each month. If you do decide to add on a little extra to the utility bills as a courtesy fee, make sure you don't push the rent too high this way, so as to not scare off future tenants.
Unfortunately, there's no easy answer to a lot of these questions. What you decide will depend on a lot of factors, including how much you're charging for a given property, how much time and resources you have at your disposal to deal with paying utilities, average utility costs in your area, and so forth. Weigh all these considerations carefully, and you should be able to come to a decision that's amenable to you and your tenants. Remember that no matter what you choose to do, you should explain your policy on utilities clearly in the lease, to avoid future disputes.
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