One thing that property investors must analyze when considering a rental property is the cost of utilities. As a landlord in Snohomish County, Washington, it goes without saying that your goal is to maximize the potential profit and income you make from your rental property.
Oftentimes, maximizing your profits usually means transferring the utility costs to residents.
Landlords have the option of including the utility costs in the rent at a fixed price.
That said, there are certain pros and cons of having utilities included in the rent. In this article, we’ll help you know what you’re getting yourself into prior to making the final decision.
Pros of Including Utilities in Rent
Pro #1: Utility costs are tax deductible.
If you decide to include utilities in the rent, you’ll be charging a higher rent. Which ultimately means you’ll have higher taxes… Right?
Well it depends on how you look at it.
If you are properly charging your tenants, then you’ll be making more profit, and therefore, paying higher taxes.
However, the costs of your rental’s utilities qualify as a tax-deductible. Utilities are a great expense for landlords and qualify as a genuine business cost associated with property ownership and management.
If you need help filing your tax deductibles, hire a professional accountant who’s well-versed in the rental property business.
Pro #2: Including utilities can set you apart from the competition
Many potential renters love the idea of having their utilities added in their rent.
As a landlord, you will no longer have to get into what is included and what’s not included in your rental listing.
As a renter, having all utilities included in the apartment or house’s rent provides peace of a mind. Utility bills usually vary month to month, which makes budgeting difficult. More so for renters in the lower-income bracket. By having a fixed payment that includes both the rent and the utilities renters will not have to pay any additional bills.
Put another way, it may help your Snohomish County, Washington property stand out from the competition.
Pro #3: You can set a monthly utilities cap.
Say, for example, the normal utility bill in January for your unit is $100, but the tenant’s bill comes in at $150. Who is responsible for the extra $50?
Well, this is where you lease, or rental agreement terms become important.
If you haven’t stated anything about the monthly utility bill cap, then you’ll have no other option than to pay the extra cost.
However, if your agreement specifies what the utility bill cap will be, your tenant may pay more attention to their utility usage. In other words, it’ll prevent the “all-you-can-eat” mentality from taking hold.
As a side not, make sure you adjust your cap depending on the season. Obviously, the costs of utilities go high during the hot and cold seasons.
Pro #4: You can charge more.
This is the most obvious reason of including utilities in rent.
By including utilities in the rent, you can charge more than the actual rent price. This is precisely the reason why many landlords entertain this idea in the first place.
Including utilities in rent essentially means taking on an extra liability and responsibility. Thus, it only makes sense to get something back as compensation.
To cover your bases, do some research. Try and figure out what landlords in your neighborhood charge for utilities for comparable units. If you are unable to find any, then consider taking your search online.
Cons of Including Utilities in Rent
Gee whiz! These are a lot of reasons why you should include utilities in rent. Makes sense why many landlords in Snohomish County, WA consider it, right?
That said, there are some drawbacks to doing it. They are as follows:
Con #1: You may have a hard time filling a vacancy.
This is usually the case in markets that are exceptionally price-sensitive. Tenants looking may be willing to pay a maximum amount, and not anything more.
Remember, nowadays, tenants search for apartments online and usually set the search filter to a specific price range.
This means that a good number of potential renters may never get to see your property listing. Or, if they actually do get to see it, they may not understand that the rental price also includes utilities.
Con #2: It’s another thing to add to your list of management responsibilities
Being a landlord isn’t easy. There are a lot of responsibilities involved. So, you may not find managing utility bills that worthwhile for you.
Forgetting to pay the utility bill on time will mean incurring late fees. In such cases, the costs will come right out of your cash flow.
Con #3: A rise in utility costs may mean fewer profits
Utility costs can sometimes go up. Say, for example, the gas and electricity rates rise by $50 per month. Guess who is going to be liable for that extra cost?
That’s right, it’s you!
Granted, you have the option of raising the rental price every time the lease is up for renewal. But that could be a year away!
Con #4: You become liable for your tenant’s utility bills.
If your Snohomish County tenant is normally liable for their own utility bills, the utility company will go after them should they fail to pay.
However, if you decide to take on the responsibility of handling the tenant’s utility bills, it is now your problem. You’ll need to keep paying the bills even if your tenant defaults on the rent.
You can’t just cut off their gas or electricity supply to compel them to pay up. The only option you’ll have is to file for their eviction in court, as you continue paying their bills.
There you have it. 4 pros and 4 cons of including utilities in rent. Is there a straightforward “right” answer here? Of course not. As such, you’ll need to evaluate both options to see which one can work out for you.