Reading Time: 6 minutes
When you operate an all-inclusive rent, you usually charge a fixed monthly fee for the bills (electricity, water, internet, condo fees, etc.).
The issue comes at the moment of the Balance, usually done periodically or at the end of the rent period. You charge a fixed amount to the tenant each month, but consumption is not constant. Frequently, bills come across different periods: bimonthly, trimestral, semestral, or annual.
Put in the equation that tenants do not stay for a standard amount of months, and you have quite a tricky problem to solve.
Starting from our experience in property management, here is what to do to address this issue.
1. Make a Fixed Amount for the Balance
Some avoid the problem at its root, and it is not too bad of an idea. For example, if you are not making profits from bills consumption, you can agree with the tenant a fixed monthly amount for the consumption.
Usually, during Summer, he will pay more and pay less during Winter. At the end of the year, the fixed fees and your expenses will balance.
This strategy completely prevents you from calculating any balance, thus saving you time and money.
Some tenants may resist this solution, wanting to pay as much as they consume.
2. Have Presumed Amounts
As when the tenant checks out, it is almost impossible having all the bills collected. Some make a forecast of the consumption and agree on that value with the tenant. This process is beneficial if the tenant gives you meter readings to calculate the pro-rata of the bill accordingly.
Unfortunately, this is not valid for each bill. Condo fees are usually annual, and there is no meter reading for that.
This strategy is fair for the tenant and allows you to close his position at the end of the lease.
The calculation is on a forecast, so you can still find some resistance from tenants wanting to pay as much as they consume.
3. Work on the Balance Once All the Bills Are In
You can wait to have all the bills to do the Balance. In this case, property managers keep a slice of it when returning the deposit to cover any additional cost deriving from the statements.
This method is the fairest for the tenant because he pays precisely as much as it consumes.
The complexity of managing this is high. It would be best if you kept open tenants’ positions even after they exited your apartment, having to come back to them after months and recuperate all the calculations.
And just a side note, a landlord can manage all of these bills through RentYourNest.
Our Solution: Work like a Phone Company
Talking with landlords and property managers, we found a possible solution to make everyone happy.
Some phone companies today offer an all-inclusive plan. You can call and navigate as much as you want for a fixed or tiered price.
You can do the same, offering an actual all-inclusive rent, including unlimited usage of electricity, bills, everything.
The Caveat
If you read the terms and conditions of your contract with your provider, it is not an all-inclusive plan. You will always have tiers or limits of usage.
Also, here you can do the same, stating that if the consumption exceeds certain thresholds, the tenant will pay for the difference.
From the first months and the first bills, you will see who consumes more and who is consuming less. This caveat will allow you to spot the tenants to whom you will get paid more.
Value for Everyone
This strategy brings value to everyone:
- The tenant is not worried about paying per consumption, as he has an all-inclusive formula. If you think about it, hotel chains do the same, and we learned from them
- You avoid the complexity of calculating complex balances on actual or forecasted consumption.
Suitable for Accounting as well
This solution is also suitable for your accounting. Having fixed incomes for bills each month, you will also be able to easily forecast your cashflows, calculating the fair fees to charge to each tenant every month.
Our Source: Hotel Companies
The all-inclusive formula is growing among hotel chains and developers because there is value for everyone. The guest is not worried about anything; he knows that he pays something upfront and can consume as much as he wants. The hotel offers an additional and differentiated service to the guest, ensuring higher bookings and, as we will see, profits.
The ‘Hold-Up Problem.’
The all-inclusive formula solves the ‘hold-up’ problem for both guests and hotels. The hold-up problem means that both parties benefit because the resort and the customer agree to a set cost for everything upfront.
The hotel benefits because it gets the client is spending money where otherwise he would have not. Don’t you use the pool? No worries, this is all included! (and I will charge you a fixed amount for that). This benefit applies the same to everything.
As a result, the hotel can get a larger share of the guest’s value.
The Value for the Hotel
There is one big chunk of value for the hotel: the information of knowing in advance where the guest will spend his money.
What does it mean? It means efficiency on operational costs. The hotel controls the variable costs of the equation because they decided what to offer in the all-inclusive upfront.
Thanks to that, they can also charge more. All-inclusive is an additional service that hotels offer, and they charge a premium for that. The all-inclusive package is an experience for the guest, and they are willing to pay an extra for it.
The Value for the Guest
This value is even simpler: relax and peace of mind. Again, the client does not have to worry about anything. They can consume as much as they want because the guest has already paid the bill upfront.
What about the Bills?
Let’s face reality. No one will leave the water running all night, keep the lights on, or turn the heating like they are in the Caribbean.
Even if you find someone doing that, the ‘low utilizes usually subsidize the high utilizers.’ This concept means that you may lose some money on some tenants, but all in all, you will make a profit.
What You Can Do
Hotels do not stop here, as their goal is to maximize the total guest value. It would help if you did the same with your tenants.
You can sell additional services, such as discount coupons on restaurants, tickets for events, access to museums, discos, and study halls and rooms if you work with students. All in all, you can provide everything that is in line with your tenants’ target.
The outcome:
- Your tenant is happier, he will refer your brand to his friends, and you will benefit from that
- You will earn even more from your tenant, maximizing his total value
How to Manage All of This?
Once we have understood that the all-inclusive package works and that offering additional services allows you to maximize the total tenant value, we need to ask one more question: how do I manage the increased complexity of providing other services?
The solution is from hotels. First, take property management software, allowing you to manage all the different aspects of your daily rental operations. Without technology or doing all of this manually, you will be lost.
What should you look at when picking a rental property management software? One simple thing: it has to be complete. Complete here means that it should have all the features that you need. You should be able to manage tenants, properties, maintenances, communications, deadlines, services, owners, and every other aspect of property management.
And remember, the easiest way to manage all of your rent, bills, and invoices are through the payments feature in RentYourNest.
