Dividing utilities with renters

[MrsKensington]

Hello Mustachians. I'm mulling a move and downsize and would love your thoughts.

I've got a house with a basement apartment. The entire thing is currently rented out, but will be available to me and my young child next spring.
Upstairs: 4 bedrooms, 2 bathrooms, kitchen, dining area, living area.
Basement apartment: 1 bedroom, 1 bathroom, kitchen/dining area, living area, walk-in closet/dressing area. The basement apartment has its own entrance and free parking.
There is one set of laundry machines, and we each have access from our own parts of the house.
I have rented out the apartment in the past while living in the larger upstairs part of the house. I charge a flat rent, and pay all the utilities. This is the convention in my area. This includes water, gas (heat, dryer), electricity, wifi and one cable TV hookup. The basement resident has NO control over the heat or central A/C - it's all controlled upstairs where the thermostat is. This has not been a problem in the past. I figure the tenant usually costs me about $150-$200/month in utilities. Market rent now is about $1,200, if I include all the utilities and laundry privileges, so let's say I'd net about $1,000/month for the basement. 

My idea is to flip this scenario when the house is available and have my kid and I in the basement and rent out the top 2 floors - which would garner much more rent. I'm not sure HOW much more - but let's say at least $1600/month, not including utilities.

My question is: How would I split up the utilities if I'm in the basement? I'm not into paying for their usage. Plus, I really like fixed bills/dislike fluctuations in bills. I'm pretty conservative with water, power, etc., and would have no control over heat and a/c.
Would I pay for everyone's TV and Internet and part of the water, and let them pay for the gas and power? Divvy it all up somehow - 33%/66%? Depending upon how many people they have up there?
This really has me stumped as to how to be fair, not seem seedy or greedy, and not get jammed up with someone else's bills who may not be as careful as I am with power/water/etc.  I cannot meter these places separately.
I work from home a few days a week and need internet and cable TV news for work (don't ask.) If by some miracle they didn't want this, I'd of course pay it all and have just one TV on the cheapo plan. But water/power/gas - this is not optional. And water ain't cheap. The more you use, where I live, the more you pay. Opposite of the economies of scale.

Any ideas?

If it helps, my current monthly nut on the place is $2,200, including taxes and insurance and principal. I'm mid-refi now, and that would bring it down to $1935/month if it goes through. My current tenants, who have the entire house, pay $2,150, so I'm subsidizing them $50/month before tax write-offs.

Thanks to any brainpower that goes into this.
-MrsKensington

[ErinG]

Cable: Ask the cable company to install another line to the basement and that will be your cheapo basic for you (they will do this free in my area. Anything to get more accounts!). If the tenants want cable, they can now purchase as much as they want directly from the cable company. If you ever decide to cut the cord, you will have that option and so will they. Also, if you grow to love and trust your tenants, one of you can shut off their service and the other can splice into the remaining service and start splitting this bill since it is somewhat fixed.
Heat: I am understand that there is 1 thermostat and it is located upstairs. Change the location of the thermostat to downstairs and you pay the whole bill.
Water: In my state, the landlord is responsible to pay the water bill but can ban washing cars, outside water usage and the like. More people = more rent and = more water usage. I don't think you can fix this without separate metering. You can consider blocking their access to the washer and dryer or putting in coin-op machines. I would consider disconnecting the hot water to the washer as well. The tenants can go to the laundry mat just like millions of other tenants if necessary.
Electric: Make sure the upstairs is fitted with energy efficient bulbs. You could install motion sensor switches. Again, you pay the whole bill.

Basically, you are going to be seen as the landlord from hell if the tenants have to pay for ANY of your usage. They will see it that way, even if you are splitting it perfectly. Plus, I never minded giving the landlord the rent check, but having continual budgeting discussions would drive me up a wall. "So, Dear Tenant, the water bill was $100, so please pay me 60%. I'll see you next week when the electric comes in. This much contact with the landlord would be too much for me.

You gotta charge them a flat monthly rent and make it high enough that it will cover their usage. Move the thermostat and rethink free laundry and get your own cable line.

I have a duplex and rent to relatives. I had them spliced into my cable (cause I love them, not because it is "included"). I recently cut the cord to save money and I have a slightly pissed tenant now. However, the cable company was perfectly happy to install a new line and now they can pay for all the cable they wish to consume. It's a cinch for the cable co. to install and turn on. I'm still sharing my wifi because it doesn't cost me extra to do so and I still love them (even when they're pissed).

[dragoncar]

Electric - set up a pedal driven generator. 

[fidgiegirl]

Here's my question, and I honestly don't know the answer, but would love to hear it if someone does:  Can the OP have separate meters installed for water, gas, etc.?  What would it involve?  Would it even be possible?

[arebelspy]

Write it in your lease that they have to pay a percent of the utilities.  Calculate that percent based on the living area each person occupies, then split common areas (kitchen, etc.) 50/50.

So if their area is double yours, they might end up paying 2/3 to your 1/3, for example.  Or vice versa if they're just renting one bedroom.

By having them pay a percent, instead of flat fee included in the rent, it helps encourage them not to waste it.

Work out a fair compromise, put it in the lease, and if they don't pay that's like not paying rent, it's breaking the terms of the lease and is grounds for eviction and can come out of their security deposit potentially (check your local laws).

Extra meters, etc. is a lot of unnecessary work, IMO, unless the place is a true duplex.  Just figure out a fair percentage, explain it to potential tenants and put it in the lease, and then have them pay it on top of their rent.

[arebelspy]

You gotta charge them a flat monthly rent and make it high enough that it will cover their usage.

As a landlord, I feel the opposite.  You charge them a flat amount and they'll waste water, leave lights on, etc. because it's not their money anymore, it's yours, and they feel entitled to using as much as they want/can.

Your area can only support a certain level of rent, and if you try to charge more, you won't find tenants (or good ones at least). So trying to make it a super high fee to cover usage won't work, IMO, it'll have to be a reasonable fee, and then they'll use a ton.

It doesn't have to involve a ton of contact from the landlord, at the end of the month it is "you owe $53 electric, $15 water, total rent this month will be 1068" (assuming rent is 1k).  But percentage is the way to go, IMO.

YMMV, to each his own, do what works for you.  Just my thoughts.

[DocCyane]

As a tenant, I'm annoyed when I see a broken sprinkler and a wave of water going into the sewer day after day - that I will be paying for. Courtesy on both sides of the rental agreement is always appreciated.

[MooreBonds]

On charging a flat rate for utilities - I disagree with all of the previous comments. :)  If you charge them a flat rate, not only will they use as much electricity/water as they can, but they will do so because they are probably naturally oblivious to it, whether they are paying for it or you are (remember: we're not talking about renting to a MMM forum member, but a random average person), not necessarily because they want to 'use as much as possible to get their money's worth'.

On moving the thermostat to the basement - I would say this is a very bad idea. Basements are naturally cooler in the summer and winter. If you put the thermostat in the basement and set it on 68, it would likely never turn the A/C on, because your basement could possibly never rise above that in the summer. Meanwhile, upstairs, your tenant is ready to move out after 3 days because the house rose to 88 degrees inside without the air ever kicking on. And same in the winter: your thermostat in the basement will take a lot longer to reach the set point, depending on how much exposed foundation wall you have in your basement (or, the furnace may cycle on a lot more frequently), and may make the upstairs considerably warmer than necessary.


One other idea - would you really need A/C in the basement in the summer? Sure, it might get a little on the warm side if you have a TV/computer/stereo system on all the time, but even then, if you have some part of the basement exposed to the concrete foundation walls, a simple small fan should circulate enough air to keep things cool. Perhaps all it would take is putting an air transfer grill in a wall (one up high, one down low) and putting a small fan in the unfinished part, forcing air from the unfinished (cooler) basement through the lower grill, and letting the warmer air naturally convect through the upper grill into the unfinished part.

Also, for the winter, just get 2 average space heaters to plug in (verify your circuiting first, as just one heater may take up an entire 15 Amp circuit all by itself), and then let the tenant do what they want with the thermostat for the upstairs. You could assume that it's on for so many hours non-stop, and calculate your energy usage from that. Plug in a few more kWH for your use, and tell the tenant you'll pay that much for the electric. The rest of the furnace/heat is on them.

However, depending on what your utilities are, it might be more difficult to figure out your usage % for cooking and the water heater.

The only idea I can think of is showing them the past 2 years of utility bills when you lived there by yourself (or whenever that was) to show them your average utility usage for you and your son. Then, anything over that would be theirs.

[Done by Forty]

We rent out a room in our house and our renter pays 1/3 utilities.  I agree with the other posters who indicate that a flat rate or "utilities included" scenario can be exploited by a renter, intentionally or not.

That said, if the current basement renters get a fair deal by having $200 "baked in" to their rent, why not apply the same rationale to the home above?  That is, the upstairs renters will pay all utilities, but you reduce their rent by $200 (compared to what you would normally charge), and that figure covers your utility usage in the basement.

You may need to have some metrics showing what fair market value for a rental is, and then lower it by $200...but if you show the math and explain you are a light utility user, I think your renters should understand it's a fair deal.

[Nudelkopf]

In Australia (or maybe just my state), if you're renting just a room that's not separately metered, you're not allowed to charge them for electricity/water. So, you're meant to build it into your rent. Which is awesome for me as a renter living with terrible housemates who don't care about electricity. But it would suck if it was just me, and I'm conservative with electricty.

[ErinG]

On moving the thermostat to the basement - I would say this is a very bad idea. Basements are naturally cooler in the summer and winter. If you put the thermostat in the basement and set it on 68, it would likely never turn the A/C on, because your basement could possibly never rise above that in the summer. Meanwhile, upstairs, your tenant is ready to move out after 3 days because the house rose to 88 degrees inside without the air ever kicking on. And same in the winter: your thermostat in the basement will take a lot longer to reach the set point, depending on how much exposed foundation wall you have in your basement (or, the furnace may cycle on a lot more frequently), and may make the upstairs considerably warmer than

SMH - yeah, I totally didn't think of this.

Work out a fair compromise, put it in the lease, and if they don't pay that's like not paying rent, it's breaking the terms of the lease and is grounds for eviction and can come out of their security deposit potentially (check your local laws).

^^^This^^^ Yes, check your local laws! I may be biased due to my own local laws. Here, suppose 1 lightbulb is in a common area with a switch in the common area (not in the exclusive control of the renter), then it's not fair for the tenant to pay that electric bill. Writing something into a lease that is forbidden in the 1st place doesn't make it right. In RI, the penalty to the landlord can be actual damages X 3. But, in ME, the tenant could agree to this in writing but only in exchange for a specific reduction in rent.

[Gerard]

Another option might be to build it into the rent at near current usage rates, then offer the tenant a rebate for (say) 2/3 of every dollar that the bill comes in under that amount. But however you design it,  I have to say if I were the tenant I would hate the idea of "sharing" utility costs that I couldn't fully control myself.

[cadamsgis]

Last July my BIL, SIL, and 2 kids wanted to move into my basement. I told them that was fine but the set amount for rent was 300. I would make the normal payments for electric of 100 and anything else was there responsibility. And water my normal bill was 85 and anything else was there responsibility.

I am super duper glad I spelled it all out before they moved in and they agreed because the first electric bill after they moved in was 353 dollars. Turns out one of the kids had his winter coat on and told me it was going to snow. It was July. My SIL insisted on turning the AC to 62 degrees. We keep the AC on 81 degrees upstairs. Why should I have to pay 253 dollars more a month then my normal bill for her to be an icicle while we are pretty warm upstairs?

Water bill similar thing - the kids found the water hose and were playing in the water and I let them for about 20 minutes then I turned it off and SIL asks me why I cut it off. I told her we have to pay for that water. 20 minutes was plenty of time to cool off. She should buy them a kiddy pool. She had never lived in a house (always apartments) and didn't really understand the cost of utilities. My water bill for 3 months was 185 more then I normally pay.

we haven't had any problems about the utilities because they pay the difference but I could totally see that extra money I was getting for rent totally gone if I had just given them a set monthly amount and me getting really resentful if they were so cold they needed winter jackets while we are upstairs in t-shirts being warm and me paying for the differences.

Then when it started to cool off it was 76 degrees outside and SIL wanted to turn on the house heat. I told her we weren't doing it. In the summer she set her AC on 62. Now that it was cool outside I wasn't turning on the heat until it was below 62 - I told her she was being ridiculous and to put on a sweater if she was cold. But then later I came to find out that she set the heater on 85 in the winter. but they always pais the difference in the bills from my set amounts.

you can't control other people and what they are going to do or how they use the utlilites

[badassprof]

Chiming in late here, but i just wanted to say that we have a 2 bedroom apartment at the bottom of our house that we rent and are currently charging a flat rate for utilities (gas and electric, cable they pay for separately). So far, it has worked out pretty well. Before with previous tenants, we split utilities, but it was difficult to figure out because a) our place was so much bigger than the apartment  and b) one of us is always working at home, which increases our utilities.  That scenario, we felt, would add to our tenants frustration if we tried to "split." It probably helps that the guy we rent to is an environmentalist, so he is relatively conservative with usage. But if we find at the end of the lease period that we didn't charge enough, we'll make an adjustment. We are in a high demand area for rentals, which gives us some flexibility.

Separate meters are great, but can be very expensive, particularly in older homes.  Also, I agree with the previous poster who said check your local laws: I know when I lived in NYC that separate meters were required or utilities had to be folded into the rent.

[freelancerNfulltimer]

For room boarders I always included utilities because I got sick of arguing with them over bills and having a separate bill to collect from them.

In your situation I would figure out what you estimate your basement utilities to cost (say $120/month) and then market the upstairs at $120 under market value for rent. They pay all utilities and get a reduction in monthly rent based on what your usage would be.

Having separate cable/internet would be a good idea though.

[MrsKensington]

OP here. Thanks to all for the considered advice.
I'm thinking I will charge market rate for rent and pay the first $200 -250 of utilities for water, gas and power. That's how much it went up when I had previous renters. I could also give free wifi and look into splitting the tv portion. It's cheaper for us to share one catv/internet account than each pay for our own.

My thinking is this: I don't want to go below market rent to start. I also think that paying a flat amount to them for utilities will encourage them to conserve.  The water bill is attached to the property owner.  If the acountholder defaults on the water bill, it attaches to the property / owner. I did have basement tenants once who neglected to tell me about a running toilet and after they moved out ("oh that? We didnt mind the running water noise. It was kind of nice" (!) wtf?), I got a water bill for $500. Sooooo maddening.  I think I will either establish an up front amount or a % I'm willing to pay depending upon the bill.

I have a few months yet so am open to any other ideas.

Thanks all.

[Matte]

do it the best of both ways, i have my rental agreement structured around him paying a 3rd of utilities (single guy in the basement) i do not want the hassle of talking to him every month to negotiate the EXACT usage.  Every anniversary of him moving in we go over his rates and i adjust accordingly based on past consumption.  He kept it the same for a couple years, needless to say his girlfriend started to spend more time over and bills went up, rent was raised $30/month to compensate.  By doing it in a going forward sort of manor you dont have to be exact and disclose bills and its not like you are haggleing for something you feel you are owed.  It is a simple moving forward thing and if they dont like it they can negotiate or leave. 

The coming july will be a big test of this strategy for me, his girlfriend moved in and she is very wasteful (not too pleasant either) lights are always left on, tons of laundry, gas bill spiked.  We agreed with her moving in that they would pay 50%, it will be a fairly big spike, even though i changed all their lightbulbs to led/cfl myself.  I am going to take step 2 if they dont improve, changing switches to timers.