Who Pays For Heat?

 

Is it better to pay the heat for your multi-family investment, or to have your tenants pay the heat?

As with much of life, there aren’t clear cut right answer, and successful investors disagree.

 

Advantages of Landlord Paying for Heat

  • Don’t have to worry about service stopping when a tenant moves out.

  • Don’t have to worry about prorating fuel at a move out.

  • You can probably get a better price for fuel than a tenant. There are fuel buyer groups out there, and we can connect you, that can help you save a lot of money.

  • You might be able to get a rent premium that exceeds your fuel cost.

 

Disadvantages of Landlord Paying for Heat

  • People use a lot more of something that they consider free. Anytime you see a window open in January, I guarantee that the landlord is paying for the heat.

  • Tenants will turn the heat up higher if they think they’re not really paying for it. Again, they’ll use more if they’re not directly paying for it.

  • If fuel prices increase more than expected, your premium might be less than the difference in your fuel bill.

  • It can be more difficult to nail down some of the financial ratios. Your utility expense will vary from year to year. If the tenant pays for heat, then that variability is eliminated.

 

Another line of thinking is that if money gets tight, a tenant will pay rent before utility bills. Based on our experience, and talking with other landlords, though, that’s not what happens. Instead, you’re likely to get a text that says “Just had to fill the tank, and money’s low. Can I pay half the rent this month and make up next month?” 

 

Ate Green Light Real Estate, we recommend making this decision on a case by case basis. Some properties simply won’t realistically give a choice. For example, if there’s one hot air furnace for a duplex, then it will be impossible to have the tenants pay for heat.

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