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Utilities Extra!

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Quick Utility/Advertising Tip

Here’s a short tip that may work for those of you who include utilities in the rent.

If your rent is $1,100 with utilities and you are having troubles filling vacancies, change your ad to this.

Rent $995 per month plus fixed monthly utilities of only $105 per month.

People won’t see $1,100 anymore, they will see only $995. The extra bonus is many people search for rents of $999 and less on online sites, this puts you into more online search results.

It won’t work every time, but in my previous experiments, the number of calls basically tripled by making this one change.

I still collected the same amount each month, but how it was presented changed the perception.

This will work for any rent amount, with utilities built in. So if rent is only $475 with utilities included, you could advertise as $425 plus $50 fixed utilities. They key point being, if you need to appear more competitive and want to attract more calls, you have to get seen.

By having a more competitive looking price point, you will be much more visible.

Bonus Utility Tips

Granted your utility costs will likely be higher than $105 per month these days, but the tactic works all the way from renting a basement suite up to a complete single family home, just the numbers change.

In my region we’re able to actually create a separate contract outside of the lease allowing us some additional flexibility. This includes the ability to charge utility increases when applicable and to include over use clauses to protect us from tenants running the heat with the windows open.

Rules differ in every area so you may have to do a little research to see what you can do with this. We’re fortunate enough that our local rules give us the benefits of not only keeping it outside of the lease, but also having it tied to the lease as a breach if they fail to pay the utilities.

Where it gains the most benefit for landlords is we get to build in an extra $20-40 per month cash flow with this strategy. This does take a bit more math homework and diligence, but an hour’s work to make an extra $300 seems like good math to me ($25 extra per month for 12 months equals $300).

So if you average out your monthly utility costs to be $250, charge a flat $275, if it’s $190, charge $225, if it is $307, charge $345! Just build in extra cash flow to cover you off and to improve your bottom line!

If you’re interested in finding out how to apply this to your property leave me a comment below and I can walk you through it a bit more in depth. There are also additional methods you can use to not just leverage this, but to also get rebates back magnifying your cash flow even more! Let me know if your really interested in leveraging that cashflow more!

Utilities? Or No Utilities?

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Should You Include Utilities In The Rent?

Do you include your monthly utilities in the rent or do you have your tenants pay them on theirr own?

Some landlords like to keep the utilities in their name and other landlords find it better to have the utilities in the tenants name.

To help you determine what may be best I created a quick pros and cons list of why you may want to go either way.

The Pro’s and The Con’s

I’ll start this with the list of reasons why you might want to keep the utilities in your name.

The Pro’s

  • It’s easier
  • You know they will get paid
  • Tenants can’t leave you with a big bill when they transfer utilities back to you early and vacate

The Con’s

  • Tenants don’t pay for utilities, so they leave lights on, the heat set higher and windows open, all driving up your utility bill
  • Higher utility costs cut into your overall cash flow
  • Tenants end up being less responsible for their actions and ultimately less respectful of your property (note this is a generalization)
  • You potentially have to rent your unit out for a higher amount as utilities are included

Now, here are the pros and cons of why you might want to have the utilities in the tenants name and removed from your name.

The Pro’s

  • Tenants take more responsibility for utility costs
  • You end up with better cash flow
  • Tenants are more apt to update you about utility issues, ie dripping taps, furnace inefficiencies, window drafts
  • If tenants skip out, the utility company goes after them (note some cities and towns have enacted legislation where the utility companies can get outstanding utilities from landlords, after all isn’t it the landlords fault? Wouldn’t want to penalize the profitable utility companies would we…)
  • Your rent may appear lower as utilities are not rolled in

The Con’s

  • Can cause issues with suited properties and bickering between tenants
  • It’s harder to manage

If you cannot tell, there are pros for both sides and before I discovered some new strategies I always had tenants put utilities in their names.

I actually wrote about this in a. different post and if you’r interested in learning how you can even use it to increase cash flow, go take a read, Utilities Extra? In the end though, you have to make your own decision.

Do You Really Understand Cashflow?

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Determining Actual Rental Cashflow

rental cashflowT to succeed and really profit as a landlord, one of the basic areas you need to understand is the cashflow your property generates and how to then budget it for future expenses or issues.

Without planning ahead like this, rookie landlords often get caught in rough situations where there simply isn’t enough money to deal with a big problem.

Here’s how a new landlord typically sees it:

Basic Monthly Cashflow

Monthly Income
Rent Upper Unit: $1,100
Rent Lower Unit: $800
Total Rent: $1,900

Monthly Expenses
Mortgage: $1,200
Taxes: $175
Insurance: $50
Total Expenses: $1,425

Total Cashflow (Income – Expenses)
$475

This is pretty typical and the $475 then goes directly into the landlords hands as profit. However, this doesn’t help you long term. Especially if you plan to expand or avoid future expenses.

To avoid falling into a trap, I’d suggest you should change your projections a bit and make it look like this (of course use your own numbers!):

Monthly Expenses
Mortgage: $1,200
Taxes: $175
Insurance: $50
Vacancy Reserve (current vacancy rate % x 2, so 10% of monthly income) $190
Repair Reserve (approximately 5-7% of monthly income) $95 (I used 5%)
Revised Total Expenses: $1,710

Actual Cashflow: $190
But Why?

So you don’t end up like the US government and have to borrow money to pay your expenses! Lack of long term planning and understanding future costs and expenses is wreaking havocs on governments and individuals throughout the world. You can do better than that.

Plan Now For The Future of  Your Property

If you plan in advance and understand you will have vacancies and also understand you will need to do repairs and that you can create reserves so money doesn’t have to come out of your pocket later, you will learn to sleep much better at night. That’s what the second example shows.

The real trick is to take those reserves you are budgeting for and move them into a separate reserve account so you don’t accidentally spend them. Once you start thinking like this you will no longer feel like you are blindsided or trapped when vacancies or repairs start coming up and it will change how you look at your properties.

Remember, Properties are not short term ATM’s, but rather long term investments.

Advanced Landlord Tip

If you have steady tenants for an extended period, this reserve can build up, so we like to put a cap of around $5,000 on a property. Once the reserves break that dollar amount, it all becomes pure cash flow again like the first example. Or……

If you are buying a new rental property, we start with a $5,000 reserve fund that we use as our cushion. That provides us with the higher cash flow right from the start. Then if we do have vacancies or repairs, we draw money out of the reserve and then revert back to the lower cash flow amount until the reserve is topped up again.

Can you see how this takes the stress out of owning property? Once you start implementing a system like this and get used to it, the pressure of having to take the first available tenant just to fill the property evaporates. It affords you more time to choose the proper tenants and doesn’t affect you directly where it hurts, in your bank account!

Is this something you are already doing? If it is great I would love to hear how it’s working for you, if it’s not, when will you be starting?