Should Landlords Include Utility Costs in The Rent
Determining the billing methods for your rental units is important, as it changes how much income you’ll gain and whether you’ll attract or repel potential tenants. When it comes to utilities, you have the choice to either include them as part of your overall bill or make them the tenant’s responsibility. When creating a budget for an investment property consider some of the advantages and disadvantages of including utilities in your rental bill.
Advantages of Including Utility Costs
Accounting for and including utility costs in your monthly bills can present you with some advantages you can use.
Enticing tenants. Some people don’t want to deal with paying additional bills on top of their regular rent. By announcing that you will include utilities in the monthly bills, it will provide a convenience that will attract several interested tenants.
Combined meter. This process does not just apply to the tenant. You can manage a combined meter instead of having multiple meters to look after and ensure that tenants are paying the bills. You can set the appropriate rent or include utilities in the bill.
Charging extra. Another benefit from including utilities is the ability to charge some extra money. After all, you need to gather enough money to pay fluctuating utility bills each month. Research the highest average monthly cost, as well as average utility costs, and charge just the right amount.
Tax deductions. If you charge the right amount and earn more profit overall, then yes, you must pay taxes. However, utilities are seen as a legitimate business expense of managing and owning your rental units. Consult your accountant for potential tax deductions.
Disadvantages of Including Utility Costs
On the other hand, the inclusion of utility costs has its own set of drawbacks you should consider.
Repelling tenants. Even though some tenants enjoy the convenience of placing all their costs in one bill, it can also put off other prospective tenants. If you advertise your monthly bill with utilities included, they might think you are asking for a bigger amount than you actually are.
Greater risk. As you include utilities in your bill, you are also assuming extra responsibility. If your tenants are late or refuse to pay rent, it will impact how much you will have available with which to pay the utility bills. Making utilities your tenants’ responsibility relieves you from that risk.
Billing limits. Even though you can charge higher to make up for rising utilities, you still have restrictions. You can only change the bill when the lease comes up, which may be a year away. Also, a soft market limits the amount that landlords can raise their bills.
Encourages bad utility use. When you streamline the billing process by including utilities, you can also give tenants a false sense of security. They might become encouraged to use more energy or take longer showers, since they expect the landlord to cover them. You will pay for the misuse, and it also leads to reduced energy efficiency.