One of the last decisions that many landlords of secondary suites decide on is how they should split utilities. But this is something worth thinking about before you’re about to post your suite online. Should you go 50/50? Or include it in the rent? These are great questions to ask, and there are many factors to consider. Let’s dig into what options you have, and what we recommend.
Should I Include Utilities In the Rent?
Including utilities in the rent can simplify payments between landlords and tenants. The way you would do this is think about how much rent you would like to get on a monthly basis, and then average what utilities cost over a year and add that to the price. Tenants like this because it creates consistency in how much they pay each month, and if your tenant is careful with how they use their power, then the landlord can potentially make a bit more on warmer months.
There are a few downsides to going down this route however. First, expect your utilities prices to go up, as tenants who are not responsible for how much power or water they consume will tend to use them all more freely.
Second, including utilities in the price makes your home look more expensive on renting sites. We have tried renting our properties both including utilities and separating them, and we found renters faster by not including utilities nearly every time. Rentals at lower prices on rental sites consistently get more views, which means there is more potential in finding a great renter.
Ultimately, we think that including utilities can be a good option if a landlord is looking for a simple way to charge their tenants. It does have the ability to eat into your profits and can make finding a tenant take longer. If you are willing to communicate with your tenants consistently, then there could be better options for you.
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A Simple Way to Split Utilities
If you decide that you want to keep utilities separate from the rent then there are a few choices that you need to make.
Whose Name is on the Bill?
If you are living in one of the suites, then the answer to this is pretty simple. It will be under your name.
If you are renting both the upstairs and downstairs however, you can choose to have them still be in your name, or choose one of the tenants to have it in their name. If it is in the name of one of the tenants then it will be between both of the renters to work out how much they each need to pay, with money being transferred between the two parties. Alternatively you can keep the utilities in your name, and just let each tenant know how much they need to add to the rent they send you each month.
Although both options have their pros and cons, we would recommend keeping the utilities in your name. It is not too challenging to send a text at the end of the month saying how much utilities is owed and needs to be included in the rent. And instead of money exchanging hands through multiple people you are the main point on contact for a single transaction each month.
How Much Should Each Suite Pay?
You can ultimately split the utilities in whatever way you see fit. One of the ways that many consider to be most fair is to look at how much square footage each suite has, add them both together, and then divide the square footage of each suite to the total to get a percentage.
Basement (600sqf) + Main Floor (1200) = Total House (1800sqf)
Basement(600sqf)/Total House (1800sqf) = .3333 or 33%
In the example above you can see that with the calculation the basement should pay 33% or 1/3 of the utilities, and the upstairs should pay 2/3 of the utilities. When you do this in real life, you probably won’t get percentages that are quite as clean as above. We would still recommend choosing whatever is closest to a simple fraction, so 1/4, 1/3, or 1/2.
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Pros and Cons
The benefits of going down this route is that as a landlord you are always getting the exact amount of rent that you excepted each month, and that the tenants are responsible for the utilities that they use. As mentioned in the utilities included section, you may also find that you can rent the suite faster as a lower cost properties on rental sites get viewed more.
The downside to this is that splitting utilities is never perfectly fair. The basement tenant may be paying less. but if he is always taking long showers, and likes to keep an electric blanket or heater on most of the day, then the upstairs tenants might be fronting a portion of what should be on his bill. It will be important that if you choose this option that you are able to foster open communication with your tenants and listen for their concerns and see what you can do to find solutions.
One Thing to Consider
While you are building your home, or legalizing it, you do have the option to contact your utilities company and have then instal a second electric and water metre. Going down this route can have a high upfront cost, but it could save you headaches in the future.
For this to happen the utilities companies would need to dig a ditch by the nearest outside wall to where your utilities room is located in your home. They would then drill a hole through the wall, install the second metre and connect it to the panels in your home. When we looked into doing this in our Nolan Hill home, we were told the cost would be between $5-10k all in. We ultimately decided that the return on investment would take too long to recoup, but it is an option that some may consider.
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In Conclusion
There are many ways that you can deal with utilities for homes with secondary suites. If you are ok with potentially leaving money on the table then including utilities in the rent is easily the simplest option. Alternatively, charging for utilities outside of the rent is more accurate, and you get the same amount in rent each month, but there are a few more headaches to deal with.
Please let us know in the comments what your preferred method is, and subscribe to Second Suite to stay up to date with the best tips on legal secondary suites in Canada.