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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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