Thursday
6.2.2014 |
Bill Biko - Don't share Utilities
Bill Biko is this fine Canadian who makes a good portion of his income by advising
landlords. I signed up for his newsletter when one of my tenants created a big
hateful asocial mess and tried to convince me that getting him out of the house
would be a long journey full of hardship and void of money. [It turned out to
be neither, once he realized that my knowledge on Alberta Tenancy was adequate,
and none of his house mates was willing to continue to accept his presence.]
Recently Bill produced this leaflet in which he argues to sign the monthly utility
bill over to the tenant, or in case that you are sharing your house with tenants,
have them participate in paying the bills.
"Bill Biko: Why Including Utilities Is Like Leaving Your Door Open In
The Winter
I. Tenants don't pay for utilities, so they leave lights on, the heat set higher
and windows open, all driving up your utility bill
II. Higher utility costs cut into your overall cash flow
III. Tenants end up being less responsible for their actions and ultimately
less respectful of your property (note this is a generalization)
IV. You have to rent your unit out for a higher amount as utilities are included"
[Bill Biko newsletter, advice #13]
I have been renting out sublets in my house for over two years now, and the
rent that I charge my tenants always included all utilities. I disagree with
Bill for several reasons.
1) Organization.
Signing bills over to a primary tenant is a lot of work. Often enough you need
to schedule meetings with representatives of the companies that supply you with
water, electricity and gas. Phone companies even require you to return your
internet and phone router, because, legally speaking, your contract with them
has ended. This can mean a lot of running, mailing, gathering of documents,
and it may even backfire, if your tenant decides to just leave the house, and
not pay the bills for a few months. [Some utility companies will continue to
deliver your utilities, even if the bills were not paid for several months.
They charge horrendous interest on every bill not paid in time, and as long
as a house has an owner they always get their money. Should your tenant decide
to claim bankruptcy or just continue to live on a different passport, the whole
stack of unpaid bills will be yours for the keeping.] Really, it is very helpful
to get the monthly bills into your own hands.
My house primarily serves as a harbour for university students, meaning that
they swap lodging every half a year. Signing over the bills to your tenant is
good advice when your tenant stays long term, but for anything less than a year
I would not consider it.
2) Seasonal changes.
While it is true that higher utility bills cut into your flow of income, the
flux in the utility costs is also very predictable. Global climate change is
messing up a lot of weather patterns, but urban Alberta is still very likely
to get a snowy winter followed by a dry summer. As Morpheus said: "Some
things never change." Thus, you can plan for it. I usually calculate a
full year in advance with a worst case scenario of utility bills, and calculate
the rent based on that.
Also, higher utility bills do not automatically mean higher costs for you, since
you can still pass them on to your tenants. By various means.
3) Shared Utilities not included.
Apparently the community of lodging-seeking students is split into people who
understand the concept of shared utilities and those who don't. Every time that
I seek a new house mate, and arrange for meetings with prospective tenants,
I encounter people who try to bargain me down. For them my asked rent is not
competitive, because other houses in the neighbourhood rent out rooms for $50
less. While the latter is true, those landlords also ask for a share in the
utility bills, which can easily accumulate to $50 (or a lot more in the winter).
I have learned not to argue with bargainers. If they have that little understanding
in the concept of rent and utility, I don't want them as house mates.
Personally I have never lived in a house that featured shared utility bills
among tenants. I have done my unfair share of moving (seven times within eighteen
months), and I always shared the house with at least one person who used twice
as much water and electricity as I. My life style is one of low environmental
impact, featuring low utility costs and even lower waste production. Thus, living
with house mates for me always means paying for someone else's electricity.
That is nothing I will easily volunteer for.
4) Ignorance is bliss.
Bill's points I and III work together as proof of the general ignorance among
tenants. While it is true that a lack of responsibility can breed further ignorance,
the opposite is rarely the case. Especially the costs for gas are so low in
Alberta [Hooray, province of the oil?!] that two to five degrees more in the
house won't have a great impact on the gas bill. Sure, the impact is great enough
for you to feel the pinch, but for tenants it is usually less problematic. They
seem to live under the impression that the "next month" will be cheaper
anyway.
This problem is amplified by a sharing of utilities among house mates. If one
tenant is wasteful, he pays $80 more. If five house mates are wasteful, they
pay $15 more, and easily take that as a sign of a hard winter, rather than their
own guilty pleasures. The first premise when interacting with tenants is always
"people are ignorant". It is so much easier to blame someone else
for the high bills than to blame yourself. And environmental forces are the
easiest to blame, because you cannot change anything about them.
It is extremely rare that a tenant is self-aware, and recognizes the problems
with his own actions. If you force that one person to share utilities with four
ignorant morons, you will quickly lose the one tenant that you wanted to keep.
5) Respect does not come from within.
If you want your tenants to be respectful of your property and of the monthly
utility costs, you will need to engulf them in personal conversation. Make your
tenants understand that all of their actions enforce a reaction. Foster the
idea of shared responsibility. If a tenant sees himself as an influential part
of the system, he will interact quite differently, as when he believes his responsibility
ends with the payment of the bill.
I am very selective about my house mates, but there is always the odd person
who does not quite commit to the lifestyle that he promised to deliver. Once
you have identified such a person, it helps a lot to sit down with him (or her?)
and have a private conversation on his responsibilities towards the house, the
mates, and the environment. If the personal appeal does not bear fruit, you
can always increase his rent by $50, or threaten to throw him out. I have had
tenants like these, and they both moved out when they realized that their irresponsibility
would have financial consequences.
6) Money stinks ... but it does make happy.
Let's face it - you have not become a landlord because you enjoy the process
of legal documentation. I am in for the money. And there's more of it, if I
charge people a fixed rent, instead of charging extra for utilities. As mentioned
earlier, I calculate a full year in advance, with a worst-case scenario of utility
costs. I then calculate the rent per room under the condition that the whole
system still makes a profit for me. I guess the reason why students are still
running for my room ads is that my personal profit is just a little bit lower
than that of all the other landlords in the area. Separating summer from winter
makes it easier to a) reason for higher winter rent, and b) offer a very competitive
summer rent.
Since I calculate the worst case, and since the worst case never occurs, I always
make a positive cut. However, keeping a watchful eye over the bills and over
my tenant's behavior is a great help in keeping the utility costs down. Remember
that my tenants pay a fixed rent, and that this rent could always increase,
if they decided to double their utility use. None of my house mates knows how
small or high the utility costs really are, so they are always mindful enough
not to be wasteful with their resources.
Finally, since they don't know the real costs, they also don't know how much
money I really make off them. Not having any idea of my financial balance, deprives
tenants of reasons for viewing me as a money grabber, thus easing their acceptance
of my leadership.
7) Conclusion.
If you rent out sublets or bed rooms for anything less than a year, I can not
endorse you to have your tenants share in, let alone subscribe to, the monthly
utility bills. It is a hazard of organization, creates mistrust and quarrel
between your tenants, and it may decrease both your income and your acceptance
level among tenants.
Instead, try to foster a climate of mutual respect and universal responsibility.
Tenants who understand their impact on the bill AND on the greater picture of
environment and house harmony will find it easier to make personal contributions
towards a decrease in utility costs. However, tenants who pay a share of the
utility bill do not automatically become responsible people. YOU have to make
that difference.
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