Should You Pay for Utilities for your Tenants?
One of the things you’ll need to decide when you buy a rental property is whether or not you’ll cover your tenants’ utility bills. This is something that some property owners include with rent, and it can be an expectation among tenants that some or all utilities will be included with the rental rate. However, this doesn’t necessarily mean you should do it. Your #1 goal as a property owner is regular cashflow, and you need to figure out how including utilities or not can impact this.
First up, let’s clarify what counts as a utility:
- Trash collection
- Internet, cable, phone
As I mentioned, there are some property owners who include at least some of these utilities, but there are also plenty who don’t. Each can probably give you a solid justification for their decision, too. So here are some of those arguments on why it’s a good idea to pay for utilities, as well as some reasons for NOT including them:
To Include Utilities
- Makes your unit more attractive to tenants. Knowing that you’ll be covering the costs of utilities – even if it’s bundled into the rent payment and comes with a slight upcharge – is certainly an attractive feature for tenants. Not having to hassle with another monthly payment is definitely a win in terms of convenience.
- Possibility for extra income. Speaking of that upcharge, some property owners view included utilities as an opportunity for increased revenue. Because they are paying for the services, as well as eliminating the hassle for their tenants, they can charge a “convenience” fee that covers the utility bill and then some. https://www.rentalutions.com/education/articles/should-landlords-or-tenants-pay-for-utilities
- Unit is not metered separately. This only applies if you own a multi-family unit where just one meter services the entire building. In these cases, it can be easier and more cost-effective to simply cover the costs of utilities for tenants rather than having to pay to have the building re-metered or to figure out exactly who owes what based on utility usage. https://www.biggerpockets.com/renewsblog/2014/03/17/pros-cons-including-utilities/
- Simpler for you. Requiring your tenants to connect their own services and handle the bills means you don’t have to mess with it. You also don’t have to spend time talking to local utility providers to set up services, make changes, etc. This makes your life easier and saves time, plain and simple.
- You may save money. When you cover utilities for your tenants, there’s no incentive for them to turn off lights to save energy or take shorter showers to conserve water. Additional utility usage means higher costs, but what do they care if you’re the one footing the bill? Even with a convenience charge added, you may find yourself paying more in the long run if you decide to cover utility costs.
- Tenant quality may be better if you don’t provide utilities. If you have a tenant who is denied service from a local utility, it’s usually because they have overdue payments or other issues with said utility. Is this the type of tenant you want? Nope. However, if your tenants ARE able to get utilities connected, it likely means they have a history of paying bills on time – which is exactly what you want in a renter. Basically, the ability to get services is a positive sign that you have a higher quality tenant.
Hopefully this list of pros and cons has shed a little light on the question of whether or not you should provide utilities with your rental property. Again, you must look at how both options could potentially affect your cashflow, as well as other factors specific to your unit and your own comfort level in managing this aspect of property ownership.