Nothing is worse than hearing that heat and power were turned off to your property in the dead of winter… Especially in colder regions, where the frigid temperatures have serious implications for plumbing. If you leave the utilities completely to your tenants to set up and pay separately, you may only find out that they are behind on utilities at the final stage of collections when the power companies shut off access.
It can be tricky, knowing what is the best way to have your tenants’ pay utilities while they are residing at your property. I’ve spoken with dozens of investors over the years and it seems as though there are many variations for what methods landlords prefer. There are pros and cons for any decision – so if you want to gain insight into what method might work best for you… read on.
As a property owner, there are several questions that you’ll need to answer which will make your ideal utility payment method more obvious.
1)Will my tenants pay utilities?
2) How many suites are there?
3) How many gas meters do I have?
4) How many electricity meters do I have?
5) Who are my utility service providers?
6) Will I get my tenants to make their own utility account?
The list goes on but you get the idea!
In many cases, landlords may offer their spaces at a set $100-$300 monthly premium which includes all utilities and allows for a simplified move-in process. You won’t need to worry about questions regarding account transfer set up, 1 800 customer support lines, confused tenant phone calls where they are having trouble setting up their account. In this scenario, the pro lies in its simplicity. The primary risk lies in three areas. If you have months with excessively high utility bills, you will be on the hook for the whole amount. This may also lead to tenants using their appliances in excessive ways, disregarding for the energy consumption. An example: Potentially a tenant may love taking baths… so much so that they take a bath every morning and night- normal water bills from previous tenants only cost $100 per month, so you budgeted accordingly. Now with this new consumption habit the cost is now $300 per month and you, the owner, will be on the hook for a $200 increased utility cost over the duration of the tenancy. Incurring an annual loss of $2400 (equivalent of a mortgage payment!) on one simple utility. One way you can protect yourself in these situations is offer a defined utility credit per month in your lease agreement… This will be worded along the lines of: “Included in rent is a utility credit of $250 per month, covering monthly expenses up to and including $250. Should the total utility cost exceed the $250, the excess cost will be paid by the tenant.” This will help minimize your risk as a landlord/investor when covering utilities and keep more money in your pocket!
A similar approach would be to keep all utilities under your own name and request full repayment at the same time as rent, normally at the beginning of the month. Similar pros as previous where the home owner has full control over the utility account and makes it very simple when owning several properties. This approach requires admin work at the end of the month to go through each utility bill and assign it to the correct tenant, at the correct shared split (suited properties often have differed shared utility breakdowns (60/40), at the correct property. The con in these situations is also the slight greater risk if there is missed rent as you would not receive either rent or utility. Then homeowners are 100% on the hook for the entire amount and even put their credit at risk if they are unable to make payments. One way to mitigate this, is to take a utility deposit alongside the standard damage deposit. This approach will encourage on time payment for both rent and utility as tenants don’t want to miss out on their precious deposits. This is especially helpful when transitioning between tenants and you are wanting to make sure the past tenant has paid their utility obligation in full before releasing their deposit.
One final (but not all inclusive) option would be to request your tenants place the utilities in their own name. This would then remove you from the monthly obligation of following up and paying these. This is ideal for landlords who want to remove their ownership of the utility obligation on a month-to-month basis and offload that to their tenants. This way the tenants are liable and tied to their utility usage 100%, if they are unhappy with the utility bill it is solely attributed to their own usage. Home owners who have separate utility meters or have a single-family residence may find this the most attractive option. Most energy companies will require you as a landlord account attached to the property as well, so that in-between tenants they have you set as default billable account. This is often coordinated through a Landlord Service Tenant Agreement (LSTA). To confirm your energy provider protocols and requirements, Id advise to call their customer support line and confirm how they recommend landlords switch accounts. DO NOT assume your tenants have it set up, it is easy to have your tenants honestly or honestly forget to set up the account. This is an easy thing to miss especially if you have multiple properties. How you can avoid this from happening: draft a single page cheat sheet for how to transfer utility accounts (make it simple) and require that your tenants send you confirmation of utility account set up prior to move in.
By no means are these the only options for managing your utilities at your properties however this will give you a head start as to what thought process other homeowners are considering when setting up their first or 100th rental property. If you have questions about your situation – don’t be afraid to reach out and I will be happy to provide my two cents!
Dayne Peterson
Premier Prairie Holdings