Utility costs - How to handle when utilities are not separated by apartment

In a multi-family property, utilities are either separate (meaning each unit has its own gas and electric meter, and maybe a water meter), or they are “common”, meaning there is only one electric meter for the entire property. Sometimes there is a common furnace or heating system, generally paid by the landlord, with separate electric meters for each apartment.

Having separate electric meters is a plus. Typically, tenants are required to put the meter in their own name, relieving the landlord of the responsibility and cost. In older buildings, especially those converted from single family homes the utilities are mostly common, unless someone has gone to the trouble of separating them, and paying for re-wiring, separate electric panels and separate meters - which can easily cost thousands of dollars per unit.

How I handle it: My old Victorian home, built in 1896, has common utilties. Originally a single family home, it was converted to apartments over 100 years ago. Sadly, it has no insulation in the brick walls and the gas/electric bill runs from $200 in the spring and fall to $1,150 for a winter month. The building was constructed before there was electricity, and originally had a coal furnace, later updated to gas.

There is one electric meter and four circuit breaker panels, which have been added over the years as more electric has been brought in. I would love to separate the utilities, but, a single circuit breaker can be supplying outlets in three different apartments as well as lights in a hall or common area. Ripping out all the old wiring would be prohibitively expensive, so I am doing it gradually.

One device I have added to each panel is the Emporia Smart Home Energy monitor which measures the amount of electricity used on each circuit breaker. So, as I upgrade electric to various apartments, I keep it on one breaker. This device has a small clamp that goes on the wire coming out of each circuit breaker.  The clamp measure the amount of electricity going through the wire and can track it by hour, day, week, month, etc.  If there are four circuit breakers going to an apartment, you can add up the usage and bill your tenant.

Example - I added some oil filled 240v electric radiators to the cold spots (under the windows) in a few apartments- and made sure that each new heaters in each apartment went on a separate breaker. Now I can use the Emporia monitor to see how much electricity is being used, AND, if I wanted to, I could charge for that. Charging tenants for electricity like this is permissible under the state law where I live, but as far as I know is not allowed in every state - so I suggest you research this before you attempt to do it. Also, markups on the actual cost are not allowed in my state.

I do not bother billing tenants separately for utilities at the present time. I treat it as part of the rent. To prevent abuse or heavy use of the utilties my leases include clauses that prohibit commercial use of the unit, I specifically prohibit bitcoin or other crypto “mining”, which is a electricity intensive process. I also include in the lease, only $100 of electricity per month as monitored by the device I describe below. I have never billed a tenant for overage, but I include the clause to help keep them conscious of the electric use and cost. Fortunately I have great tenants who act responsibly, but I do check the home monitors every few months.

Another option for billing tenants when there is only one gas/electric meter would be to charge a portion of the utility costs to each apartment.  This can be done by square feet. Example: an apartment that is 500 square feet might pay 1/6th of the utility costs of a 3,000 square foot house.  Or by occupancy - four apartments with one person each might pay 1/4th.  If you have large common areas like a basement, laundry room, entrance foyers, where lights stay on perpetually, you may have to adjust the billing. This is another area where state or city law often applies and you need to research this before implementing.

How heavy are utility costs overall? They can be substantial. My utility costs run about $10,000 per year for a four apartment building.  This includes water (about$100 a month), cable/internet - $100 a month, gas and electric ($200-$1,150 a month) , garbage pickup ($250 a year), storm water ($250 a year) and other assorted fees the city keeps managing to come up with.

When I bought my property, I put in a brand new high efficiency furnace (and received a power company rebate of $1,000) and added central air (the house had none), and also added a mini-split system with two heads for the top floor apartment, which had its own ancient gas heaters.   The mini-split was a great investment and added air conditioning to a top floor apartment which got quite hot in the summer sun.   It is also on its own circuit breaker, so it is easy to track the usage and expense.  Adding mini-splits to each apartment could be the best way to deal with the cost of heating and cooling for a property with common utilities.   Heating and cooling are the two biggest components of the electric bill. Mini-splits are typically installed from the outside of the property. The mini-split (heat pump powered) added to a third floor apartment, with two heads, ran $10,000 in 2021. It works well and is very efficient and I would recommend it.

In summary, if you have common utilities, bundling the utility costs into the rent is the easiest method. A lot of tenants will appreciate that because it eliminates the uncertainty of the utility bill. For me, billing by the month per square foot, or by other measures (where allowed) is more work than I want to be bothered with at this time. Likewise, trying to add more electric meters to the property would require permits and a lot of work and money and I don’t see it as worthwhile right now. If you intend to rent furnished units as medium-term rentals or short-term, bundling all the utilities into the rent is probably the easiest approach. You can also start with common utilities and then gradually separate them one apartment at a time, doing the upgrades as tenants leave and new ones come on.