Property owners have the opportunity, in most cities, to decide whether they want to include utilities in their tenants’ rent. While it may simplify matters in some ways for the investor to take on the responsibility of the gas and electric bills, and some landlords say it attracts better tenants to do so, there are real risks to handling these expenses in this way.
Typically, property owners are not charitably paying expenses themselves. They calculate an average monthly cost for utilities and bundle that cost into the rent. So it’s very important to determine what utilities cost before assuming responsibility for them. It’s also important to know that including utilities in rent for rent-controlled housing is illegal.
The most common utilities under consideration are water and sewer, electricity, gas, and trash and recycling. Other common utilities are internet, cable, and telephone, but those are almost always the resident’s responsibility.
Any lease agreement should lay out clearly what utilities are included in the rent, if any, as well as any local requirements as to what provider must be used for any particular utility.
The pros of including utilities in monthly rent
The owner can charge a premium
For taking on the responsibility of paying the bill, the landlord can charge a premium.
Ease for residents
Once the process is set up, the tenant has just one bill to pay each month. This may be attractive to clients who want to minimize administrative hassles as well as those who find it difficult to budget for multiple expenses each month.
Tax advantages
Utilities are one of the costs of running an investment property, so they are tax deductible.
Credit card rewards
If the utility company allows customers to pay their bills with a credit card with no fee, the owner can earn benefits on their preferred credit card, such as airway miles, with money that’s actually being spent by the resident.
The cons of including utilities in rent
The owner takes on the liability for paying the bill
If a resident is responsible for the electricity and doesn’t pay the bill, the utility provider will compel the tenant to pay, and may even cut off service. But if the owner’s name is on the account, and the tenant fails to pay, the owner is responsible all the same.
And the law frowns on so-called “self-help evictions,” in which an owner tries to compel a resident to leave without bringing the law into it.
Tenants may have no incentive to conserve
Residents may not be inspired to save energy if they feel they are not paying for it, and might be less conscientious about, say, leaving lights on all night or maintaining tropical levels of warmth in the dead of winter.
Rising rates can cut into profitability
Utility companies can change their rates without notice. If an owner accounts for a $100 electric bill as part of the rent, but the cost to the landlord rises to $150 in a given month, that impacts rental returns.
To get around this problem, the owner can set a dollar cap on how much can be covered as part of the rent. If the cost to the owner exceeds that amount, the resident can be required to make up the difference. (This can help avoid the disadvantage of tenants having little incentive to conserve.)
The rent may appear higher to prospective renters
In highly price-sensitive markets, prospective tenants may see only the price tag, not consider the fact that it includes rent, and rule out a house where utilities are included. If they are searching for homes based on price, they may even filter homes above a certain rent.
The bottom line on including rent with utilities
Should property owners include utilities with rent in their rental properties? There is no one correct answer for all investors.
It depends on factors that vary by market and the investor’s tolerance for risk and additional administrative work.
The investor may be able to earn more and attract more desirable tenants. On the other hand, it will add one more complication to your property management.
This article originally appeared on Mynd.co and was syndicated by MediaFeed.org
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Can you really negotiate rent?
The surprising answer? Yes.
It may sound intimidating (or simply futile). But, with a little research and a well-thought-out approach, it may be possible to negotiate your monthly rent, and land a better deal.
Your chances of successfully lowering your rent will likely depend on a number of factors, including the going rate of comparable rentals in your area, the value you present to your landlord, and the state of the rental market and economy in general.
To reduce the awkwardness of bringing up the subject (because, yes, haggling can be uncomfortable), and increase your chances of sweetening your deal, you may want to try some of these smart negotiating techniques.
Related: Negotiating a house price
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The obvious payoff of reducing your rent is more cash left over at the end of the month.
But you may also want to consider the longer-term benefits. Let’s say you’ve successfully negotiated your monthly rent down by $100.
It’s nice to have that extra $100, of course. But over the course of a year, that monthly savings adds up to $1,200.
Let’s say you applied that $1,200 yearly savings to paying down credit cards or a student loan debt (rather than paying the minimum).
You might be able to save significantly on interest payments, and also boost your credit score (which could help you save money in the future by helping you to get loans and credit cards with better terms).
Recommended: What Credit Score is Needed to Rent an Apartment in 2022?
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Or you could funnel that monthly $100 saved into a checking and savings account and start building a down payment on a home (if you’d prefer to own vs. rent) or an emergency fund or working toward another savings goal.
If you were to invest an extra $100 into your 401k or other retirement fund each month, it could yield a significant income stream decades from now. (If you’re already contributing to these accounts, be aware of the annual limits.)
In addition, by learning how to negotiate, you’re also developing a lifelong skill of standing up for yourself and cutting better deals as an experienced negotiator, which could pay off in other areas of your life.
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As eager as you may want to cut a good deal, and as quickly as possible, it can be wise to time your approach to maximize your chances of success.
That means negotiating at the right moments, when your landlord may be more amenable to cutting a deal.
Those timed might include:
- The end of the month, when other tenants may have vacated the property and your landlord may enjoy the stability of a long-term tenant.
- 90 days or so before your current lease expires. That’s enough time to offer to sign another lease, but only at terms favorable to you. If you’ve been a good tenant, and the market is soft for new tenants, your odds of renegotiating a lower rent may be stronger.
- At the beginning of the calendar year. Typically, winter is a slow time for property rentals, especially in the colder climates when moving is more difficult, and it may be harder for landlords to find new tenants. Stepping into the vacuum with an offer to stay another year–at a lower monthly rental price– might give you some new-found leverage.
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To help build your case when approaching your property owner about a rental deduction, it can help to know the lay of the land.
If you can prove that you could live more inexpensively in a nearby rental, your landlord may be more inclined to grant a discount, rather than lose your business to the competition.
For that reason, it’s a good idea to do a little digging and comb through online listings to find out the rents of comparable units or properties in the area.
Perhaps a similar one-bedroom apartment for rent has an amenity that’s not offered at the apartment you’re currently in or considering. You might point out how these factors make the landlord’s rental terms somewhat higher than the going market rate.
When you speak to the landlord, it may help to have a printout of comparable apartments that are slightly lower in rent and, if the unit has been unoccupied, have this information on hand as well.
You may also want to check what other apartments in the same complex or rented out elsewhere by the same landlord currently cost. This can help keep you from overpaying for an apartment and may also help you negotiate a lower rent.
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If you can afford it, adding a lump-sum payment – say, three months of rent upfront – may strengthen your bargaining power, and boost your odds of reducing your overall rent payment.
That’s because many landlords prefer having rent in hand, and not having to worry about late or no rental payment from tenants.
What’s more, offering an upfront, lump-sum payment is one way to show a landlord that you’re serious about being a solid tenant.
A landlord may be more amenable to doing business with a tenant who is willing to go the extra mile – and may be more likely to get on board with a rental discount.
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If you particularly like the house or apartment you’re renting, you might consider offering the landlord a longer lease in exchange for lower rent payments.
If, for example, a landlord is offering a 12-month lease to a new tenant, at a fixed monthly rental price, and you agree to extend that lease to 18 or 24 months, you might be in a stronger position to ask for a rental discount.
All things being equal, landlords tend to favor tenants who’ll be around for the long haul, and may be more likely to green-light a lower rent for a longer lease arrangement.
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Landlords typically loathe empty apartments, so if you can help fill a rental unit with a referral or two, it might put you in a better negotiating position to ask for a rental price deduction for helping out.
Rental unit owners usually have to pay for classified ads to lease their open units. In addition, landlords often have to put some sweat equity into showing units, chasing down tenant leads, and vetting potential lease applicants.
By bringing your landlord good, qualified, and stable tenants, you may be able to become a valuable asset for your landlord and help build a more robust case for a rental deduction in the process.
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Yes, the primary goal in a rental negotiation is to bring the price down.
But in case that conversation proves fruitless, you may also want to consider some other perks or benefits you could ask for in lieu or a rent reduction.
Some ideas:
- A prime parking space (especially in urban areas.)
- New appliances and/or fixtures in your home or apartment.
- New or larger storage space.
- “First dibs” on better apartments or homes in your complex, once they free up.
- A waiver of fees and charges on things like gym memberships, parking privileges, community rooms, water or trash removal, or other services and amenities.
- Extra parking passes for guests.
- Allowing you sublet for the summer (if you plan to be away).
- One or two months free
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Nobody likes to be ambushed on financial matters. That’s why you might have more success if you call your landlord well ahead of when you need to sign the lease, and politely let them know that you’d like to discuss the terms of the lease and are wondering if they would be open to a price reduction.
You might then suggest having a meeting (in person tends to be best, since it can be harder to say “no” to someone when you’re sitting face-to-face) some time in the next week or two.
This gives your landlord some time to consider the situation–while also giving you some time to build your case.
In addition, giving your landlord some lead time shows you’ve put some thought into the matter–-and it also shows you respect your landlord’s time and schedule.
Keep in mind that you have a right as a renter to negotiate rent, but being diplomatic and respectful to your landlord will likely yield a better result than being aggressive.
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When you do meet with your landlord to negotiate the terms of your lease, it can be helpful to make a good case for keeping you on (or bringing you in) as a tenant.
For example, you might want to have a record of all your on-time payments, your solid credit score, and any history of providing referrals for this landlord.
You may also want to mention your willingness to extend your lease, that you’re courteous to other tenants, keep the property in good shape, and any other points in your favor.
Any and all of these factors could help persuade your landlord to give you a better deal.
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Once you’ve successfully negotiated your rent downward – or otherwise improved the terms of your lease– and have a verbal agreement, it’s a good idea to get the deal in writing.
Having both parties sign off on the new rental agreement provides you with document proof that you have a new deal in place, in the event there is any misunderstanding down the road.
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While rental leases may appear set in stone, they’re more flexible than many tenants think, especially if the rental market is soft in your area (meaning more rentals than renters).
Whether you’re applying to rent a new apartment or signing a new lease on your current rental, you may be able to negotiate a better price if you’re able to show two things: that the rent is higher than similar units in the area, and that you are a model tenant who pays rent on time.
It’s also a good idea to come to the table with some alternatives to a rent reduction (in case your landlord is firm on price), such as a better or free parking space, new appliances, or waiving the membership fee to the on-site gym.
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