One of the decisions you as an investor will make when you own an apartment building is whether or not to advertise the apartments as “All Bills Paid. ” In an “All Bills Paid” apartment building, there’s only one bill for each tenant that includes rent and all utilities. That means that you as the owner are responsible for taking care of the utilities. What are the pros and cons of this scenario?
Easier to Rent. “All Bills Paid” apartments are easier to rent because tenants enjoy the convenience of not having to worry about utility bills. They’re also easier to rent because the tenants don’t have to come up with a credit check or a deposit for utility companies.
Simplified Accounting. The owner only pays one check each month to the utilities company for the entire building.
Potential to Increase NOI. If you calculate conservatively on utilities usage, you could potentially increase your NOI (net operating income) with “All Bills Paid.” If you’re charging $250 on top of rent for utilities, but utilities actually cost you $200, you have increased your NOI.
Could be Costly to the Owner. When tenants aren’t monitoring their own utility bills, they’re less judicious about conserving energy. If electricity is “free,” they won’t worry about leaving the air conditioning on while they’re away for the day. Meanwhile, the building’s electricity usage is climbing, and you will end up footing the bill.
Friction Among Tenants. If you have to raise rents because utilities prices have increased, some tenants may complain that they have been conserving energy while other tenants have been wasting it. Usually, the tenants will work this out among themselves, but the property manager will likely hear about it.
If you are concerned that an increase in utility charges or excessive usage by tenants will hurt your bottom line, you could add a clause to the contract that says if the utility bill exceeds a certain amount, the property manager reserves the right to bill back the tenant. This increases tenants’ awareness of energy consumption.
If your building is set up with a single electricity meter, you can put a monitor on the individual units to measure usage. You can outsource this service to a company that monitors usage every month. This can be helpful in determining which tenants are overusing energy.
“All Bills Paid” apartment buildings are Class C buildings . If you own an older building and wish to simplify your accounting, attract new tenants, and potentially increase your net operating income, consider converting to “All Bills Paid.”