By Laura Schlereth
The rental market is a competitive, bottom-line industry, so property managers need to give serious thought to the amount of rent they charge prospective tenants, and whether that rent includes utilities.
It’s important to note that although including utilities in the rent can attract certain tenants, it can negatively affect your bottom line. Tenants who don’t receive individual bills will pay little attention to the thermostat or how long the water runs and likely will consume a significantly larger amount of energy than those who pay by usage.
"I think that it’s difficult for a property manager to really decide [whether to include utilities in rent]," says B.J. Santavy, president of London Property Management Association (LPMA) and residential operations manager of Skyline, an apartment rental company in Guelph, Ont. "There are no right or wrong answers. There has to be a lot of research done."
Property managers should conduct the following research to make the most informed decision:
Monitor utility rates. Santavy recommends working closely with your provincial landlord organization because it communicates with your provincial energy board and can update you on rates and price fluctuations. You also can work with the energy board directly, Santavy says.
Identify market trends. Santavy recommends examining your market to determine whether other managers are including utilities to see how much they save or lose by doing so. Also, consider the level of interest renters have in your specific area. If your market has minimal vacancies, you may feel less pressure to include utilities in the rent, Santavy says. If tenants want to live in a specific neighborhood or in a particular building, they'll be willing to pay for usage.
How does including utilities affect usage? It’s no surprise that when managers include utilities in the rent, tenants will be inclined to use more energy than if they were accountable for their usage, says Kim Walker, property manager for Blossom Gate-Medallion Corp. in London, Ont. Tenants with utilities included can use 4 to 10 times more energy, Walker says. "It seems the only way to achieve reduction is to make the customer responsible." In fact, a study from the Federation of Rental-Housing Providers of Ontario found that if a building switches from bulk metering to sub-metering—where usage is tracked within individual units rather than building-wide—consumption can drop between 10 and 26 percent.
Which utilities are included? Walker says most renters expect rent to include water, but one way to conserve and lower utility bills is to install low-flow fixtures in bathrooms and kitchens. Some renters might expect rent to include electricity and gas, but it depends on the property. If electricity is included, managers can install more efficient lighting or appliances to save energy. Properly sealed windows also can help reduce heating bills. If you can’t separate the gas bill by unit, Santavy says you can’t sub-meter. This puts you at a disadvantage, as tenants will use more energy, and you might have to raise the rent to account for additional usage. It’s possible to sub-meter gas and water, but it is very expensive and difficult to implement, Santavy says.
How to attract renters who pay for utilities. Interest in energy-saving activities, such as turning off lights when leaving a room and insulating windows rather than turning up the heat, has continued to increase. By paying only for utilities they use, renters very likely could save more money renting from you. "If they’re a responsible energy user, and the rent is low enough, they’re going to save," Santavy says.
Determining whether to include utilities in the rent is a difficult decision, so take the time to evaluate your market and your budget to see what makes the most sense for you and your tenants.