As a landlord, you have the choice of including, or not including, utility costs as part of the rent price charged to your tenants. But, what is the better option?
Benefit of including utility bills in your rent price
Paying for your tenant’s utility bills can increase your rent price. But, remember, more rent does not always mean more profit because the bills must be paid.
This rent pricing strategy is suitable for short lets with high tenant turnover, such as Airbnb and executive rentals. Most short-let tenants will not apply for properties that require them to open new utility accounts.
Rent inclusive of bills is also suitable for properties that are rented to multiple unrelated tenants. The utility bills are also tax deductible. And, financial conflict among your tenants is limited if you take responsibility for paying the bills.
Benefit of excluding utility bills in your rent price
Rent prices are often marketed at a lower rate if bills are excluded. However, lower rental prices can attract more prospective tenants. And, with more tenancy demand, your rent price can increase.
You also bare less property management duties if your tenants are accountable for paying their own utility bills.
But, which option is better?
Over the years, the rent prices for my investment properties have included and excluded utility bills. From experience, it’s better to exclude utility bills when letting long-term rental properties.
Many tenants completely disregard their water, gas and electricity usage if they are not responsible for paying their own bills. Lights are on longer than necessary. Hot showers last longer. Gas radiators are on 24 hours, all throughout winter; the same applies to air conditioning. Higher usage means higher bills.
Admittedly, this was my behaviour when I was once a tenant. And, through karma, my electricity and gas bills have always doubled whenever I pay the utility bills on behalf of my tenants.
And, with excessive usage, utility appliances are more likely to break. As the landlord, you pay for the replacement or repair costs.
So, do you include utility bills in your rent price?
Sign up for weekly property investment tips