Why and How to include Utilities in your Rental Price
No one likes paying utility bills, and your tenants are no exception. By giving the option of predictable, more stable expenses every month you can earn more for your rental and attract more prospects to fill your units faster.
When considering whether or not to include utilities in the rental price, a lot of landlords are hesitant to take on the extra risk. When calculated accordingly and planned properly, it is easy for landlords to include the price of utilities into their rental price and not have to worry about the added bill.
We have broken down the benefits of inclusive utilities into 4 key benefits and ways to successfully implement them.
#1 – You Can Charge More
You can, of course, charge more for providing utilities. But you can also charge a little extra for freeing your tenants from the tyranny of the utility company. Essentially, you can charge more than your costs, because you’re taking on an extra liability and so, you should be compensated for it.
Do some research on what landlords are charging in your market for comparable units with utilities included. Make sure you have a crystal-clear understanding of average utility costs for your unit before trying this though. The last place you want to be is stuck holding a utility bill 50% higher than the rent premium you’re charging!
#2 – Set Utility Ceilings & Triggers
You do not have to eat the extra cost if a bill during winter, for example, is higher than the norm. Instead, you could write into your lease agreement specific utility bill ceilings to offset the costs. If the tenant’s bill comes in above the price ceiling , a more conservative option is to make the tenant responsible for the coverage. In the previous example, if the ceiling is set at $100/month, the tenant becomes responsible for any additional costs beyond that ceiling; if the utility bill is $150, the tenant pays you for the extra $50. It becomes due as unpaid rent, subject to late fees if they fail to pay it, incentivizing tenants to pay attention to their utility usage. Using price ceilings prevents that “all-you-can-eat” mentality from taking hold.
Note: Be sure to set utility ceilings by season. Utility usage is higher in summer and winter months, when air conditioning and heaters are blasting. Set your utility ceilings accordingly.
#3. – “Utilities Included” will make your property stand out
A large pool of tenants will specifically seek out apartments or properties with utilities included. Renters who pay for utilities as part of the rent don’t have to deal with putting the utilities in their name, which means they can move in faster and have fewer responsibilities to worry about. In most cases, that means you’ll be able to attract tenants faster, and move them in faster, reducing your total vacancy time.Tenants may have an easier time budgeting their expenses if their utilities and rent are bundled together. As a result, you’ll be less likely to have to deal with late payments.
#4 – Utility Costs Are Tax-Deductible
Utilities are tax-deductible if you're covering them because they're a necessary business expense associated with owning and managing your own real estate rental business.
Rule of Thumb for Inclusive Utilities:
In Edmonton, the cost of basic utilities (electricity, gas, water, waste services) for a 915 square foot apartment comes in at an average of $220.00 per month. In addition, the average price for internet service, with unlimited data comes in at $92.00 per month.
This comes down to an average of $0.35 per square footage with internet included.