Utilities Included vs. Separate in Rental Properties: The Landlord's Complete Guide

By PropsManager Team · Rent & Finance · Jan 09, 2025

Here's a question that's cost me more money than I'd like to admit: should you include utilities in the rent, or make tenants set up their own accounts?

I've tried every approach over the years. I've eaten $400+ monthly water bills because I thought "utilities included" would help me fill vacancies faster. I've also lost good applicants who didn't want the hassle of transferring six utility accounts for a one-year lease. The answer isn't always obvious, and getting it wrong can quietly bleed your profits dry.

Let's break down every option—what works, what doesn't, and what the numbers actually look like when you run them.

Why Your Utility Strategy Matters More Than You Think

According to the National Apartment Association, utility costs represent 15–25% of total operating expenses for rental properties. On a $1,500/month rental, that's potentially $225–$375 per month in utility costs. Get your billing approach wrong and you're either subsidizing someone else's comfort or scaring off tenants with a complicated move-in process.

The decision also impacts your:

• Net operating income (NOI) and property valuation
• Tenant quality and retention rates
• Legal exposure in states with strict utility billing laws
• Time spent managing accounts and chasing reimbursements

This isn't a minor operational detail. It's a strategic decision that affects your bottom line every single month.

Option 1: Tenant Pays All Utilities (Separate Billing)

This is the most straightforward setup. Each tenant opens their own utility accounts—electric, gas, water, trash, internet—and pays the providers directly. You don't touch any of it.

When Separate Utilities Work Best

Separate billing works perfectly when each unit has its own meters. Single-family rentals, duplexes with individual meters, and newer apartment buildings designed with sub-metering are ideal candidates. The utility company handles billing, collections, and shutoffs. You're completely out of the loop.

I've got a fourplex in a college town where each unit has separate electric and gas meters. My tenants pay their own bills, and I haven't thought about utility costs on that property in three years. That's the dream.

The Real Pros of Tenant-Paid Utilities

Zero financial risk on consumption. If a tenant decides to run three space heaters all winter with the windows cracked, that's their problem—not yours. I once had a tenant whose January electric bill hit $380 on a 900-square-foot apartment. Under a utilities-included model, that would've come straight out of my pocket.

Conservation incentive. When people pay their own bills, they turn off the lights. They don't run the dishwasher half-empty. The U.S. Department of Energy estimates that tenant-paid utilities reduce consumption by 15–30% compared to landlord-paid arrangements. That's not just savings for them—it's less wear on your HVAC systems and appliances.

Predictable expenses for you. Your operating costs become much easier to forecast when you're not guessing how hot the summer will be or whether your tenants are crypto miners running server racks in the spare bedroom. (Yes, that actually happened to a buddy of mine.)

The Downsides You Need to Consider

Move-in friction. Some tenants—especially younger renters—hate setting up accounts. They've got to call three different companies, provide deposits ($50–$200 per utility in some areas), and coordinate start dates. Every added step increases the chance they pick a competitor's listing.

Unpaid utility bills can become your problem. In many jurisdictions, if a tenant skips out on the water bill, the lien attaches to the property, not the tenant. I learned this the hard way in 2019 when I inherited a $1,200 water bill after an eviction. Check your local laws carefully.

Not possible without separate meters. If you've got a triplex with one water meter, you simply can't make each tenant pay their own water bill directly. The utility company won't split it for you.

Cost Comparison: Separate Utilities

Option 2: Landlord Pays All Utilities (Included in Rent)

The "all utilities included" model means you pay every utility bill and factor those costs into a higher monthly rent. It's common in older multi-family buildings, student housing, and certain luxury markets.

When Utilities-Included Makes Sense

It makes sense when you can't easily separate meters, when your target market expects it (think furnished corporate housing or student rentals near campus), or when you've done the math and the premium you can charge more than covers average usage.

In some markets, "utilities included" is a powerful marketing hook. I manage a couple of furnished units near a hospital that I rent to traveling nurses on 3–6 month leases. They don't want to set up and cancel accounts every few months. I charge $200/month above market rent, my average utility cost is $140/month, and I pocket the difference. Works great—until it doesn't.

The Brutal Downside: Tenant Abuse

I'm going to be blunt. When tenants don't pay for utilities, some of them will abuse the privilege. Not most. But enough.

I had a tenant who kept the thermostat at 62°F in July in Phoenix. The August electric bill was $340—on a unit where I'd budgeted $110. That's a $230 hit to my cash flow in a single month. Multiply that across a few units and you're looking at thousands in unexpected expenses per year.

The National Multifamily Housing Council reports that "all-inclusive" utility arrangements result in 20–35% higher consumption compared to tenant-paid models. On a $150/month average utility bill, that's an extra $30–$52/month per unit. Across 10 units, you're potentially hemorrhaging $3,600–$6,240 per year you didn't plan for.

Strategies to Mitigate Risk With Included Utilities

If you're going the utilities-included route, protect yourself:

• Build in a generous buffer. If average utilities run $180/month, price your rent with a $250 utility buffer. Yes, you'll make a little extra in mild months. You'll need it for the brutal ones.
• Add a utility cap clause. Some landlords include a lease clause that covers utilities up to a set amount—say $150/month—with the tenant responsible for overages. Check your state laws first; this isn't legal everywhere.
• Install smart thermostats. A $120 Nest or Ecobee that you control remotely can prevent the worst abuse. Set reasonable temperature ranges (68–76°F) and save yourself hundreds.
• Switch to LED lighting and efficient appliances. Upfront investment pays back fast. LED bulbs alone can cut lighting costs by 75%.

Cost Comparison: Utilities Included

Option 3: RUBS (Ratio Utility Billing System)

RUBS is the middle ground that a lot of landlords don't know about—and it's often the smartest play for multi-family properties with shared meters.

How RUBS Actually Works

You pay the utility bill as the account holder. Then you allocate a portion of that cost to each tenant based on a formula. The most common allocation methods are:

• Square footage: A 1,000 sq ft unit pays twice what a 500 sq ft unit pays
• Occupant count: A unit with 3 people pays 1.5x what a unit with 2 people pays
• Hybrid: Combination of square footage and occupant count
• Equal split: Each unit pays an equal share (simplest but least fair)

A Real-World RUBS Example

Let's say you own a 4-unit building with one water meter. The monthly water/sewer bill averages $320.

You recover the full $320. Each tenant pays a proportional share. Nobody's subsidizing anyone else's five-person household.

The Legal Landscape for RUBS

Here's the catch: not every state allows RUBS, and the ones that do have specific rules. California, for example, requires you to provide tenants with copies of the actual utility bills. Some states cap the administrative fee you can add (typically 5–10% of the bill). A handful of cities have banned RUBS altogether.

Before implementing RUBS, check your state and local regulations. This isn't something you want to guess on—utility billing violations can carry fines of $500–$5,000 per occurrence in some jurisdictions.

Why RUBS Is Often the Best Option for Multi-Family

According to Multifamily Utility Solutions, properties that switch from landlord-paid utilities to RUBS see an average reduction in utility consumption of 15–25%. Tenants who see a line item on their bill—even if it's allocated rather than metered—start paying attention to their usage.

For a 10-unit property with average utilities of $250/unit/month, recovering even 80% of that through RUBS puts $24,000/year back in your pocket. That's significant. For many landlords, switching to RUBS is the single most impactful change they can make to their bottom line.

Utility Billing Decision Checklist

Not sure which approach fits your property? Run through this checklist:

• Does each unit have separate meters for all utilities? → Tenant pays directly
• Are you in a market where "utilities included" commands $200+/month premium? → Consider including
• Do you have shared meters on a multi-family property? → RUBS is your best bet
• Are you renting furnished units on short-term leases? → Utilities included makes sense
• Have you experienced tenant utility abuse in the past? → Move to separate or RUBS
• Does your state allow RUBS? → Research before implementing
• Are you in a rent-controlled area? → Check if utility charges are regulated

How to Transition From Utilities-Included to Separate or RUBS

Already offering utilities included and want to switch? You can't just flip a switch mid-lease. Here's the playbook:

Step 1: Run the Numbers

Pull 12 months of utility bills for the property. Calculate monthly averages, seasonal peaks, and per-unit allocations. You need to know exactly what you've been absorbing before you can set new rates.

Step 2: Check Your Legal Obligations

In most states, you can't change utility billing mid-lease. You'll need to implement changes at lease renewal. Some jurisdictions require 60–90 days' written notice before changing how utilities are billed, even at renewal. Local landlord-tenant attorneys charge $150–$300 for a consultation that can save you thousands in compliance headaches.

Step 3: Update Your Lease

Your lease needs explicit language covering the utility billing method, allocation formula (if using RUBS), payment timing, administrative fees, and what happens with disputes. Generic templates won't cut it here.

Step 4: Communicate Clearly

When I transitioned a 6-unit building from utilities-included to RUBS, I sent tenants a letter 90 days before renewal that included the previous year's actual utility costs, an explanation of the RUBS formula, their estimated monthly charge, and the corresponding rent reduction. The transparency mattered. I kept 5 of 6 tenants through the transition because they could see the math was fair.

Step 5: Track and Adjust

Use property management software to track utility costs against RUBS collections. PropsManager's expense tracking features let you monitor utility costs per unit, flag unusual consumption patterns, and generate reports showing whether your RUBS allocations are actually covering your costs. It takes the guesswork out of what's normally a spreadsheet nightmare.

Common Mistakes Landlords Make With Utility Billing

After managing utilities across dozens of properties, here are the mistakes I see most often:

Underestimating the buffer on utilities-included. If average utilities are $180/month, don't add $180 to rent. Add $250. You'll thank yourself in January and August.

Not accounting for vacancy costs. When a unit is empty, you're still paying the base charges on water, sewer, and trash. Budget $40–$60/month per vacant unit for minimum utility charges.

Ignoring seasonal variation. A $90 electric bill in April becomes a $240 bill in August. If you're pricing utilities-included based on spring numbers, summer will destroy you.

Failing to document the billing method in the lease. Verbal agreements about utility splits are worth exactly nothing in housing court. Get it in writing. Every. Single. Time.

Not auditing utility bills. Utility companies make mistakes. I've caught billing errors totaling over $2,000 across my portfolio over the past five years. Review your bills quarterly.

The Bottom Line: Which Approach Maximizes Your ROI?

For most landlords, the priority should be:

1. Separate meters + tenant-paid utilities (lowest risk, highest conservation)
2. RUBS for shared-meter properties (fair allocation, cost recovery)
3. Utilities included only when market conditions justify the premium or short-term leases make separate billing impractical

The numbers don't lie. Tenant-paid utilities or RUBS will almost always produce better net operating income than eating the costs yourself. The exception is when you can charge a rent premium that consistently exceeds actual utility costs with a healthy margin—and even then, you're taking on risk you don't need to.

If you're managing multiple properties with different utility setups, keeping track of costs, allocations, and billing across units gets complicated fast. That's exactly why tools like PropsManager exist—to centralize your expense tracking, automate RUBS calculations, and give you real-time visibility into what utilities are actually costing you per unit. You can check out our pricing to see which plan fits your portfolio.

Explore More PropsManager Resources

Looking for the right property management software? Check out our in-depth guides:

• Compare Property Management Software — See how PropsManager stacks up against Buildium, AppFolio, Rent Manager, and Propertyware.
• Software for Small Landlords — Built for landlords managing 1–50 units without the enterprise price tag.
• AI-Powered Property Management — Discover how automation can save you 5–10 hours per week.
• Solutions for Property Managers — Scale from 50 to 500+ units without scaling your costs.

Frequently Asked Questions

Can I charge tenants for utilities that aren't in their name?

Yes, but only through legal methods like RUBS or a utility addendum in the lease. You can't just tack utility charges onto rent without proper documentation and tenant consent. The billing method must be clearly outlined in the lease agreement, and many states have specific disclosure requirements. Always check your local landlord-tenant laws before implementing any utility billing arrangement.

What's the average utility cost per rental unit in the U.S.?

The average ranges from $150–$300 per month depending on location, unit size, climate, and included services. The Energy Information Administration reports the average residential electric bill alone is roughly $120/month nationally, but this varies wildly—from $85/month in milder climates to $200+/month in states like Alabama and Mississippi where air conditioning costs are steep.

Is it legal to add an administrative fee to RUBS charges?

In most states, yes—typically 5–10% of the allocated utility cost. Some states cap administrative fees at a specific dollar amount or percentage, and a few prohibit them entirely. For example, Oregon limits RUBS administrative fees to 4% of the utility bill. Always verify your state's specific regulations before adding any administrative markup.

How do I handle utility billing during tenant turnover?

During turnover, you're responsible for any utility costs between tenants. For tenant-paid utilities, make sure the outgoing tenant's final read is scheduled for their move-out date and the incoming tenant's service starts on their move-in date. For RUBS properties, prorate the outgoing and incoming tenant's share based on the number of days each occupied the unit during the billing period. Tracking all of this is much easier with property management software than doing it manually.

Should I include water in rent even if other utilities are separate?

This is common, especially in areas where water service can only be in the property owner's name or where there's a single meter for multiple units. If you include water, add $40–$70/month to your rent to cover it, and consider adding a lease clause about excessive usage. Water is one of the utilities tenants are most likely to waste when it's included—leaving sprinklers running, ignoring running toilets, and taking marathon showers all add up fast.

Take Control of Your Utility Costs

Still tracking utility expenses on sticky notes and spreadsheets? Managing utilities across even a handful of properties gets messy—and every dollar you lose to poor tracking or unbilled charges is a dollar off your bottom line.

PropsManager gives you a centralized dashboard for tracking all property expenses including utilities, automated RUBS calculations for multi-family buildings, and clear per-unit cost breakdowns so you always know where your money is going. Request a demo to see how landlords are saving an average of 8–12 hours per month on property expense management.

Already handling utilities like a pro? Check out our guides on the hidden costs of being a landlord and cash vs. accrual accounting for landlords for more ways to tighten up your financials. If you're raising rents to cover utility increases, our guide on how to gracefully raise the rent on good tenants has you covered.