Landlords and rental property managers beware! Offering to include utility fees in your rent could cost you.
When trying to come up with tenant incentives, you may be tempted to combine the rent and utilities into one monthly fee. Unfortunately, in some cases, this can be a costly mistake. When trying to decide what to offer new tenants, ask yourself these 5 important questions before including utilities in the rent:
Will It Be a Fixed Price or Variable Price?
Throwing utilities into the rent can be a big tenant incentive. The trouble is, those costs can vary from month to month. During peak cooling and heating seasons, utility costs can soar. Add in a tenant who doesn’t even try to conserve energy and those bills can become unbearable. While negotiating a variable rate with tenants is a possibility, most want a fixed rental fee each month. When adding in your cost for energy usage, be sure to calculate the annual costs and divide that amount by 12. Then add about 20% to ensure that your costs are covered.
How Energy Efficient is the Unit?
If your rental unit is very energy efficient and you have a good idea of what heating and cooling costs will be throughout the year, adding the utilities into the rent can be a profitable endeavor. Charging a standard utility fee in a unit that uses a fraction of energy can yield a tidy profit each month.
Does the Building Feature Separate Meters?
If you are the property manager or landlord of a multi-unit building or complex, you will need separate meters in order to put the utilities in the tenant’s name. Buildings without individual meters must include utilities in the rent.
What Caliber of Tenant Do You Seek?
Research has shown that tenants who are capable of putting utilities in their own names tend to be a better quality tenant. Utility companies don’t like deadbeats and tend to restrict their ability to sign up for services on their own. These are the tenants who look for apartment rentals that include utilities. Meanwhile, tenants who are able to get the utilities on their own are more likely to be more responsible and pay their rent on time. Of course this isn’t always the case, but it is something to consider when making your final decision regarding utility payments.
Adding utilities to the rent can be a big draw to potential tenants who seek a predictable housing cost. Regardless of the season or their energy usage, their monthly costs remain the same. Of course, this also means that your advertised rental rate is going to be higher and this could turn away others who are comparing other units in the area (and their lowered price) simply because utilities fees are extras.
It is also important to see what other landlords in the area are doing when it comes to setting these rates. Doing something out of the ordinary may turn some potential tenants off.
Setting rental rates can be a complicated endeavor. Knowing what to offer new tenants is the key to creating an enticing package that draws interest while giving you the opportunity to keep a sustainable profit margin. Hopefully, by asking yourself these 5 questions, you will have a better idea of what will work best for you and your tenants.
About The Author
Maurcia H. is a seasoned writer with 20-plus years of publishing experience which includes 10 traditional print books, three book collaborations; more than 100 ghostwritten books. Specializing in both how-to pieces as well as industry oriented articles, Maurcia has written press releases, blog posts and articles for a variety of construction companies.