Rental Building Expenses Far Exceed Rent Increases
Updated on February 10th, 2021
By submetering tenants and removing utility costs from total rent costs, building owners and operators can mitigate and better manage their total operating expenses.
LandlordBC recently published an eye opening article detailing the struggles of purpose built rental buildings in Vancouver. The article found that even for buildings raising rent every year at the maximum rent increase of 3.2% for the past ten years, rental expenses would far exceed rent costs.
Here’s a bit more detail of the sample building: The sample building was a mid-sized three storey building with a wood-frame, built in the late 1970s. It was situated within suburban Metro Vancouver, and was well-maintained by their long term owners, who also re-invested into the property.
LandlordBC identified and highlighted the main expense items a typical building owner or property manager would have to address over time, including their associated percent increase per year. This included:
- Property taxes (variable)
- Insurance (+8.6% per annum)
- Utility costs such as electricity and water (+9.4% per annum)
- Repairs and maintenance (+15.4% per annum)
- Sewage costs (+7% per annum)
- Total operating expenses = +7.6% per annum
It’s clear to see that after repairs and maintenance, paying for utilities such as electricity and water are one of the highest expenses for building owners and property managers.
This rings true in our findings as well. Once our multi-residential clients separated utility fees from rent payments, they were able to achieve Sustainability Through Accountability: This lead to introducing variable utility costs, which are based on tenant use instead of a flat rate, allowing tenants and building owners to be financially responsible for their utility use, therefore reducing their consumption.
Further, we have found that typically only a third of tenants can account for two-thirds of all utility costs within a building! This leads to higher overall prices for all tenants, as the high utility users are subsidized by all other tenants. Submetering utilities in your building for electricity, thermal heating, and water can have help mitigate rising utility total operating expenses.
You can’t manage what you don’t measure. Contact us today for how we can help your rental property with submetering.