This is the last tip in a 10-part series on purchasing residential rental properties based on my experience.
10. Utilities can use you up, so be careful.
Utilities can be a major issue for landlords if not set up properly. If you supply utilities to your tenants, you are generally not permitted to terminate these for nonpayment or other issues, and penalties can be severe.
Want to keep the bills in your name but have the tenants pay their portion to you? The law does not generally allow you to collect if they default on these sums, so you may risk losing out if the tenant stops paying their portion of the utility. Plus, you are still required to furnish them with these utilities, even if they fail to pay. Unless you can incorporate a flat fee into the monthly rent figure which covers your expenses even as costs continue to rise, it is best to insist that tenants pay utilities directly, under their own name. Then, in the event of default, you are not responsible.
This means that properties containing 2 or more rental units need to have split utilities; separate furnace, hot water heater, meters, etc. It is much easier and cheaper to purchase an already-split property than to try to do this yourself, so this is an important factor when you are looking at multiple-unit properties. Duplicate systems will mean more maintenance costs over time, however.
In addition, you should look into whether a property has gas heat , electric heat or oil heat and understand the issues involved. Electric heating systems can be very expensive, and therefore undesirable for tenants. Oil heat, while better-priced, can involve more system maintenance, since if the oil runs out, the system needs to be bled by a technician before the new oil will enter the system and begin heating. Based on technician availability, this can mean a few days without heat if the tank runs out and you don’t schedule ahead to ensure a seamless transition. Gas heating is generally the simplest to maintain from a landlord perspective, since if the gas company ceases to be paid, they cut off the gas supply, but can quickly reinstate service once payment is received.
Published or updated September 27, 2007.