The Pros And Cons Of Bundling Utilities In Your Rental Property

There are many benefits to being a landlord. Renting properties out to tenants essentially allows landlords to receive regular incomes while being, in many ways, quite hands-off. Being a landlord can allow an individual a supplementary income; some landlords rely entirely upon income properties, rather than a traditional career. However, when choosing to become a landlord there are many preliminary decisions to consider ahead of time. While tenants live in the properties, ultimately the landlord is responsible for the property’s maintenance and upkeep. Furthermore, if a landlord takes on certain bills and uses the tenant’s payment to cover them, they could potentially take a financial hit if their tenants are late on a payment. This is why it’s important to have tenants screened carefully, whether you as the landlord are choosing them, or if you leave much of that to a property manager.

One of the earliest and most important decisions you’ll make as a landlord is whether or not to pay for the property’s utilities. Some landlords choose to handle the utilities themselves, while others leave that to tenants. While it may seem to be an obvious choice, there are actually several pros and cons to both options, which we’ll explore below. The fact is that neither option is as straightforward as they may initially look. It’s important to consider your options carefully before making a final decision. Once the tenant signs a lease, it can be very difficult to alter these terms. Choose wisely!

What Types Of Rental Utilities Should A Landlord Consider?

Before deciding whether or not to take responsibility for utilities, it’s important to consider which utilities a landlord would normally need to consider. These typically include trash collection, water and sewage, electricity, natural gas, and sometimes internet, cable, and telephone systems along with security and alarm systems. It’s important to look at your “competitors” on the real estate market to decide whether or not to include utilities that aren’t true “necessities”, like internet, phone, and cable or an alarm system. Often, in cities with a large amount of younger residents, including college students, competitive landlords include these extra utilities. If your property is the first property an individual has ever rented, it may be easier for them to adjust to living on their own for the first time if these extra utilities are included. Should a landlord choose to include these utilities, they typically will raise the rent. While the rent itself may be higher, a lot of potential tenants will appreciate the fact that they don’t have to make separate payments to different companies, and they’re often willing to pay a premium compared to what they would pay for properties that don’t include utilities. However, landlords don’t have to bundle utilities with the standard rent in this manner; they can also charge a flat fee for utilities each month, or invoice their tenants for utilities. In general, many landlords are more comfortable with bundling their utilities, not only because they receive the necessary payment in time with the rent, but because they can advertise a property as one that includes utilities. Finally, a landlord can deduct the cost of utilities from their taxes, though they should do this under the advisement of a CPA.

What Are The Pros And Cons Of Including Utilities?

A pro of including utilities that we mentioned above is that it makes your property more competitive in a crowded real estate market. The convenience for tenants cannot be denied, and with a typical American household spending $1,945 on heating, cooling, appliances, lighting, and electronics each year, many see bundled utilities as a deal. Another benefit for landlords is that they can simply know that they’re in control of things like heating and electricity. If you prefer having a good amount of control over your property, this is probably the option for you. For example, if a tenant is irresponsible and lets the heat shut down over the winter, your property could potentially be damaged. Taking care of it yourself ensures that you don’t have to worry about such problems. That being said, lots of landlords struggle with tenants that end up taking advantage of this situation. They don’t conserve electricity and water as they should, which means that the landlord ends up paying more. As a normal residential utility consumer in the U.S. used about 914 kilowatthours per month in 2018, this can easily get out of control. If your tenant brings on a live-in partner, the utilities costs could rise despite the bundled utilities only accounting for one person’s costs; in fact, American energy use doubles every 20 years. Ultimately, factors like they could negatively affect your profit margins.

What Are The Pros And Cons Of Having Tenants Pay For Utilities?

Some of the cons of having tenants cover utilities have been alluded to above. Tenants can fall behind on the bills, which will negatively affect your property. Furthermore, you may not reach as many potential tenants if you could when advertising a property that doesn’t include utilities. However, allowing tenants to pay for utilities, keeping them in their own names, takes a lot of responsibilities out of your hands as a landlord. It may be easier to control your profit margins if you don’t worry about utilities, as well. There will be fewer unknown factors to try to loop into your calculations, and it will be easier to make predictions about expenses. For a landlord that relies heavily upon properties for an income, this may be a bit easier than offering bundled utilities.

Clearly, there are advantages and disadvantages to both options. A landlord should choose based on their individual preferences and comfort levels, but they shouldn’t forget the market they’re working with either. The decision can make or break a property’s success.

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