How do you price rent when utilities are included?
Take a full year of bills for each utility you cover, divide by units and months to get a monthly cost per unit, add a cushion for rate increases and a cold winter or hot summer, and add it to the rent you would charge if tenants paid their own. Then decide whether to cap usage in the lease so one heavy user does not cost you the building's margin.
Why include utilities at all?
Including utilities is the simplest arrangement for everyone. A tenant sees one number. The owner skips billing, formulas and disputes. In some buildings, such as ones with one master meter, there is no practical way to bill separately without installing meters or using a formula that your state may restrict. The price of simplicity is that you carry the risk of rising rates and heavy use.
What is the pricing method?
- Collect twelve months of bills for every utility you will cover: water, sewer, trash, gas, electric, internet.
- Add them up for the year. Include the fixed charges, taxes and fees on each bill.
- Divide by the number of units, then by twelve. That is the monthly cost per unit.
- Add a cushion for rate increases and weather. Choose a percentage you can defend from your own history, such as the difference between your highest and lowest year.
- Add the result to the rent you would charge if tenants paid their own utilities.
- Check the total against what comparable buildings charge for rent with utilities.
Example a made-up fourplex paid $5,760 over twelve months for water, sewer and trash. Divided by four units, it is $1,440 per unit per year, or $120 a month. With a made-up 10 percent cushion for rate increases, the added charge is $132 a month. If tenants paying their own utilities would pay $1,100 in rent, the all-in rent is $1,232.
The numbers above are invented to show the steps. Use your own bills.
Should you cap usage?
Some owners include a base amount and bill the tenant for use above it, sometimes called a utility cap. A cap is a lease term with its own rules. Where you bill any amount back to the tenant, your state's rules for utility charges can apply: Arizona requires the lease to list the services charged separately and any administrative fee, and Oregon requires the landlord to explain how the charge is allocated and to bill within 30 days of the provider's bill. If you are considering a cap, read the statute for your state first.
How is it recorded?
When utilities are included in rent, the bills you pay are rental expenses and the rent is rental income. IRS Publication 527 lists utilities as a type of rental expense. You do not net them against each other. Your preparer decides how it applies to your return.
What if you want to change later?
Moving from included utilities to billing tenants mid-lease usually needs the lease to allow it. Arizona, for one, lets a landlord start a submetering or ratio billing system during a term only if the rental agreement provides for it, with at least 90 days' notice. The simpler path is to change at renewal and show the tenant the full picture: lower rent, utilities billed on a stated method. Review the numbers each renewal.
Where DoorKeeping fits
DoorKeeping reads each utility bill with AI and codes it to the property's books, so twelve months of bills for one property is a single report you can pull into a spreadsheet or ask Claude or ChatGPT to total. Renewal offers go out as e-signed documents once you approve them. DoorKeeping does not set rent for you from your costs. This is general information, not legal or tax advice. Check the current statute and ask a local attorney or your tax preparer.
Sources
- A.R.S. 33-1314.01, Utility charges; submetering; ratio utility billing; allocation (Arizona Legislature), read Oct 31, 2026
- ORS 90.315, Utility or service payments; additional charges (Oregon Legislature, Chapter 90), read Oct 31, 2026
- IRS Publication 527, Residential Rental Property, read Oct 31, 2026
Questions
- How much should I add to rent for included utilities?
- Divide twelve months of your actual utility bills by units and months, then add a cushion based on your own history. There is no standard figure.
- Can I cap how much utility use is included?
- Often yes, in the lease, but billing the overage can trigger your state's utility charge rules, so read the statute first.
- Are included utilities deductible?
- Utilities you pay are a rental expense under IRS Publication 527, and rent received is income. Your preparer decides how it applies.