HMO - Bills Included or not?
Posted on 26th April 2022 at 11:36
That is the question that many HMO Landlords would be asking themselves right now. With the energy prices increasing is it still feasible to provide all bills included service?
Unfortunately there is no a simple answer to this question, as everyone has different models, but this article can help you to stay on the safe side, showing you how you can mitigate the risk, whether you include the bills or not.
In my opinion in the current market it makes more sense not to include the bills, speaking mainly about gas, electricity, water and broadband. In many cases if you rent to the sharers you will be still responsible for paying the council tax.
Below a few tips to make your life easier when renting the property to the sharers, without including the bills.
Aim to rent your house as a whole property to a group of friends - it’s always easier between friends to manage the bills. They can keep themselves accountable for the energy usage. They would be responsible to set up the utility accounts and to contact the providers. This will free up a lot of your time and most likely save you money. My advice would be to always remember to take the meter readings for the period that you were responsible for the bills. Always make sure you have the pictures to avoid any mistakes or misunderstanding. At the end of the tenancy, always check if all the bills have been settled. Do not release the deposit until you are sure there are no outstanding bills, otherwise you may find yourself responsible for paying the debts
If in your area there is more demand for individual room rentals - don’t worry! You can still rent the rooms without the bills. The key is to make the research around your area to know the room prices excluding the bills. If you need to pay the council tax, also take it into consideration, so the rental income covers your mortgage, council tax and you are still left with the profit you had in mind before renting the property. When renting individuals room you can approach it differently:
The bills are under your name and the tenants have to refund you the amount you spent on the utilities. It works when you have good tenants, but it can also go really wrong if someone decides not to pay. Always make sure you take the meter readings every month, so your are being charged based on the actual usage, not estimated one. Otherwise you may end up with a big bill a few months after that you will have to cover yourself, as the tenants may not even be in your property anymore.
Leave the payments to the tenants. But make it clear at the beginning (before you sign the contracts) that they will have to cooperate with each other in regards to the accounts opening, payments and contacting the providers.
For the individuals, probably the first option will be more desirable, especially if they are renting only for 6 month. There is also a risk that they will fall out with each other and they will not want to work together towards the bill payments.
If you go for the 1st option it leaves you as a landlord in a potential risk. How can you mitigate it?
Install pay as you go meters - gas & electricity will be the main cost when paying the bills. So this is the one that you want to control monthly. Pay as you go is a great way to make sure the Tenants will pay, as if they don’t, they won’t have heating and hot water.
Broadband - this one is usually quite a low cost, and every Tenant needs internet so they are more likely going to pay for it
Water - water is easier to manage, as the amount doesn’t change that much. My only advice would be to pay it monthly rather than twice a year. Some of the tenants may move out before the bill is released, and then it would be difficult to ask the new tenant to pay for the usage. You will most likely have to cover the bill for your previous tenant.
If you decide to keep the smart meters in place, be very disciplined about taking the meter readings. Ideally you want to do it every month, so you can keep the costs under control and intervene quicker if necessary. If you don’t check the usage on a regular basis, you will not know whether your tenants use the heating responsibly. The bills will then get estimated, and you will end up with a big debt when you finally give the actual meter readings to the providers.
Always keep in touch with your Tenants. When you see that the bills are increasing month by month, just talk to them. Make it clear, that they need to be sensible if it comes to the bills and make them aware that you are checking it regularly.
If the Tenants don’t cooperate with you then you may have to change the contracts into no bills included, or simply increase the rents if you haven’t done so for a while. The cost of living goes up, also for Landlords, so they need to reflect it in the rents unfortunately.
If you are just starting in property business, or you have a new project on the go I would definitely advise not to include the bills when it comes to HMO, especially in the current market. This will keep your portfolio on the safe side, without being worried about the energy costs every month. When you include the bills, the Tenants often don’t really care, whether they left the heating or lights on the whole day. You would be surprised how disciplined they can be about it if they actually pay the bills themselves. But if you prefer to rent your property with all bills included, then you need to do your numbers and make sure the rent you charge reflects the further price increases that will take place in October 2022.
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