Tenant pays for heating fuel, how to handle?

Discussion in 'Off Topic' started by NetWareHead, Jan 15, 2013.

  1. NetWareHead

    NetWareHead THAT guy

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    I am looking at purchasing some rental property. In New England, many of the properties heat with propane and/or oil and this presents a unique challenge to me. I only have experience with properties supplied with natural gas and any tenant would always get the utilities in his name. I would be responsible for utility charges until date the tenant assumed responsibility and it made it very easy to maintain responsibility over costs.

    With oil and propane, the fuel is obviously paid for first and stored on site. My father had experience renting out a building with 5 commercial units in it, all heated by an oil boiler in the basement. He would ask the tenants to keep the heat down to a reasonable level during the day and set it lower at night. He told me many times he would have to enter a unit at night for maintenance reasons etc... and find the heat cranked up to 80 when the business was closed. :eek: :mad: The oil tank was filled up multiple times each winter and it drove him crazy.

    Eventually he converted the building to natural gas, gave each unit its own boiler and made the tenants responsible for their own utility costs. Dad added a heating addendum to the lease and made acceptance mandatory. The tenants tried to fight back but in the end they could not do anything about it. Now, at night time, the thermostats were set to 60! My dad even told me that the tenant who was the most forgetful about leaving the thermostat cranked way too high was at one time spotted wearing a hat and jacket INDOORS during one bout of really cold weather :D :p Its for this reason that I would like the tenant to be responsible for their own utility, because when they pay for it is when it is used responsibly.

    I have identified some issues that I don't know how to solve/handle:

    1. When the unit is unoccupied, it still needs to be heated. Meaning I would have to have some fuel in the tank/cylinder. When a new tenant signs a lease, how is that fuel handled? I think the best way is to measure how much is remaining and charge the tenant accordingly. What is the best way to measure oil or propane levels? I visited a friend nearby who burns oil and his tank had a crude meter that just gave measurements in the Full, 3/4, 1/2, 1/4 marks. I'd need something more precise, preferably giving me the gallons remaining. Possible?

    2. When a lease ends and tenants vacates the building, how is the remaining fuel (purchased by the tenant) handled? The tenant can't easily take the fuel with them (my girlfriend leased an apartment with a wood stove for heat, when her lease was up she took the cord of wood she had purchased with her) or do oil/propane companies offer a fuel removal service? I would again probably need a way to measure the remaining fuel and compensate the tenant for any left behind.

    3. Assuming it were possible to meter the fuel, what price should I charge? Price I paid for it when purchased? Or should I charge the current price of the fuel? Meaning if the price has varied significantly since my purchase price, I may make/lose money. Could I mark it up?

    I would love to hear some best practices from you guys please. How have you handled these issues?
     
  2. olds

    olds Elite Member

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    Can't you have the tank full when they move in and tell them to have it full when they leave? Like a rental car.
     
  3. waggy

    waggy No Lifer

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    that's a good way. though the cost of propane changes during the year.

    #1) yes you can keep it at 1/4th full or full. they can put in by the gallon (or $)

    #2 as olds said is probably the best

    #3 IF it's in the lease you are going to make a profit go for it. but to be honest thats a dick move and could have other issues.
     
  4. lxskllr

    lxskllr Lifer

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    I like this. Straightforward and easy.
     
  5. SpatiallyAware

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    Personally.......


    I would pay to fill the tank, then have a separate utility deposit to cover whatever that cost, assuming it was less than $500.

    When they move out, they either have to have it refilled (by a legit company...... I would lock the fill cap somehow to prevent them from improperly filling it) and you pay with deposit, then return the remainder, or you refill it yourself and return the remainder with fill receipt.

    Potential issues... Let's say you fill it now for $3 per gallon, and the prices go up after two years to $5 per gallon. I suggest refilling once per year to avoid a single huge refill fee. Whatever you do, figure out how much a COMPLETE refill will cost and charge them that as a deposit. Don't say ok it cost you $200 to fill that 1/4 tank to charge $200 deposit... Guarantee they will empty the tank and leave you will a $800 fuel bill.


    Tenants are terrible people. Even "good" setups can have a son who is a bad seed with a good idea of filling the tank 1/2 with lead to save money. I would never ever 'trust' a tenant to keep heat at any reasonable level on my dime. I would never buy a rental property in a situation such as this, with a tank of any sort that needed refilled. It's too much potential for drama.
     
  6. Blackjack200

    Blackjack200 Lifer

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    Yeah, that's how I would do it. Have the tank filled when the tenant moves in. Put in the lease that the tank will be full when they move in and it is expected to be full when they move out. If it is not, have the tank filled and deduct the cost from their deposit (save the receipt of course).

    What a pain in the ass though. Convert it to gas if you can.
     
  7. SpatiallyAware

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    "3. Assuming it were possible to meter the fuel, what price should I charge? Price I paid for it when purchased? Or should I charge the current price of the fuel? Meaning if the price has varied significantly since my purchase price, I may make/lose money. Could I mark it up?"



    Check your state landlord tenant laws before doing this. In my state I have heard of landlords getting in trouble for "acting as a utility" for upcharging the cost of trash pickup, although the law revolved around apartments upcharging water costs it can still be applied to a regular single landlord. FYI I live in a very landlord friendly state and this was still an issue.

    I suggest never, ever, ever trying to 'make' money off of a tenant in ANY way other than rent.

    If you want to make more money raise the rent but charge market cost for fuel.
     
  8. Blackjack200

    Blackjack200 Lifer

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    Most oil tanks (especially in New England) need to be refilled multiple times in a winter. Unless it's one of these new fangled 50 degree winters we're having now.

    I know tenants can be scumbags, but I don't think they would fill an oil tank with lead. If they did something like that I would consider pressing criminal charges. Also, I think lead is a lot more expensive than oil. If they were going to pull any shenanigans I think they would put water in it with a garden hose. I guess you can get around this by delaying the return of the deposit until the tank has been through another empty/fill cycle. Don't know what the law would say about that though... :\
     
  9. Squisher

    Squisher Lifer

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    I am totally ignorant of heating with oil. Now with that said, aren't there retail available meters that can monitor use in real time?
     
  10. Blackjack200

    Blackjack200 Lifer

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    I'm sure he could hook something up, but does he really want to drag his ass out there to read the meter, calculate the cost of the feul based on the current price, and then try to get that out of his tenant every month?

    Here's what nice about gas heat: The tenant pays the gas bill. The end. The tenant doesn't want to pay the gas bill? The heat goes off.
     
  11. SpatiallyAware

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    Ah gotcha. I live in a warm climate, and have never dealt with an oil tank. We do have above ground propane, but even that is a once every year or two thing.


    Generally the people you 'meet' IE mom and dad seem fine. In my experience it's teenage boys age 15-20 that are the most trouble. The lead thing was an example, could be rocks or whatever. As a landlord with a rental property you have to do anything and everything to protect yourself... Personally, I would definitely lock the tank to prevent any possible shenanigans. You couldn't press charges as you could never ever prove it was those particular tenants.
     
  12. waggy

    waggy No Lifer

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    the odds on that happening are low. i would be more worried about them trashing the house itself.

    also i wouldn't worry about them putting in lead (or diesel which is what i think you use). it's far more expensive then buying home heating oil
     
  13. lxskllr

    lxskllr Lifer

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    I've never heard of heating system sabotage. Sure, it could happen, and I'm sure it probably has somewhere, but it isn't something I'd worry about. It's like buying meteorite insurance for your house. There's a non-zero chance your house will be hit and damaged by a meteorite, but it isn't something I worry about.
     
  14. SpatiallyAware

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    Over the years I have been a landlord I have seen some REALLY crazy stuff. Someone filling a large diesel/oil container with water or whatever would be pretty low on the list..

    If you have good tenants then no problem. But, what if you have to evict someone? Let's say they haven't paid two months rent, $4000 or whatever, and you are taking them to court for $5k including the fuel cost...
     
  15. waggy

    waggy No Lifer

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    frankly at that point the Fuel cost should be the LEAST of your worries. i would be more worried about the inside of the house, the plumbing etc.
     
  16. sjwaste

    sjwaste Diamond Member

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    I don't know the answer to what OP is asking, but to address some of the other "convert to gas" comments in this thread:

    If we could, we would.

    Northern New England is a funny place. We don't have gas lines available in many cities. Particularly in my neighborhood, they really can't run gas out to us because they'd either have to do a lot of blasting to bury the pipe or run it through the marsh.

    If we move out of the house we're in now, though, I'm not going back to oil (or propane). The real estate search will start with towns that have natural gas and good schools.
     
  17. waggy

    waggy No Lifer

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    what's wrong with propane (oil i agree with)?
     
  18. Blackjack200

    Blackjack200 Lifer

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    I understand what you're saying, but I don't think I would lock the tank. The diameter of the filler is usually only an inch or two, so the amount of effort/time it would take to fill the thing with rocks that would fit just makes it really unlikely. I have just never ever heard of this happening.

    Also, many tanks are checked for level with long wodden stakes that are pushed to the bottom of the tank and then drawn up to see what level the oil is at. The tenant would be caught as soon as the stick hit a rock halfway down.

    Are you really going to drive out to the property to unlock the tank every time your tenant needs oil?
     
  19. NetWareHead

    NetWareHead THAT guy

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    Both are expensive as hell
     
  20. sjwaste

    sjwaste Diamond Member

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    Propane is expensive. Basically not much cheaper than oil on a cost per BTU basis, and definitely not if you have good working oil equipment at the house already. They have very high efficiency propane boilers/on demand heaters now that do offset the cost a bit, but my HVAC guy was telling me that they do in fact fire at >95%, but that quickly drops off when the return loop starts coming back a little warmer. So it's misleading unless you're firing on demand on shorter cycles.

    Beyond that, the propane company leases the tank to you. You can buy it and fill at a more competitive rate, but it's a pain in the ass.

    I have both oil and propane at my house. Propane is there for the fireplace and I fill once a year at ridiculous prices due to my usage levels. I've considered converting my heat, but my oil boiler is perfectly good.
     
  21. SpatiallyAware

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    I absolutely would.


    :shrug; I'm not saying you will definitely have a problem with this. All I'm saying is that, as a landlord, I have firsthand had some REALLY bizarre crap happen.... From a/c unit stolen 1 day after move-out to people installing an outlet above a fireplace then covering live open wires with sheetrock. I am currently dealing with an absolutely ridiculous subtenant situation:

    http://forums.anandtech.com/showthread.php?t=2293340&highlight=


    My point is that if 'protecting yourself and your property' IE a tank with ~200 gallons of fuel and a >$5000 heating systems means investing in a $50 lock for the fill cap it would be an absolute no brainer to me if it's going to be a longterm rental.

    Another similar example are furnace filters... I don't care how much you write it into a lease, email reminders, whatever, you are unlikely to get a tenant to reliably replace them. I have had them caved in with dust all over the a/c coils.... After paying to clean them etc, I started sending in my maintenance person (dad) once every 6 months to replace them on my dime. Similar thing... Is it a pain? Yes. But it's VERY cheap insurance against expensive repair bills so it's worth it.



    Fair warning... No rental property is going to be a set it and forget it situation... If driving out to refill a fuel tank 2-3 times a year is a pain then I suggest not ever being a landlord.
     
  22. NetWareHead

    NetWareHead THAT guy

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    This sounds like a good idea. It keeps the costs of fuel out of the main deposit, fuel alone can be expensive. Figure a normal 275 gallon tank x $3.70 a gallon = $1017.50. Fuel alone can wipe out a good portion of a security deposit if I ever had to go down that road. I don;t know the laws regarding charging a separate fuel deposit to a tenant and what a tenant's reaction to having to pay a separate deposit would be. Like I said, oil/propane is new territory to me.
     
  23. Blackjack200

    Blackjack200 Lifer

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    Frankly I'm surprised the energy companies aren't blasting the rocks to get gas lines out there. They're sitting on a tremendous amount.
     
  24. waggy

    waggy No Lifer

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    I have propane now (old house had oil and when it died we changed to propane). i hated oil for the fact it stunk (but you get used to it).

    i wouldn't change from oil unless there was a need.

    the new heater unit we have is great it saves us 1 fillup a year. before we would fill up 3 times a year. now 2 last us the year (this year even less).
     
  25. NetWareHead

    NetWareHead THAT guy

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    Inertia of the customer. In New England for example, gas is somewhat scarce. I think I was reading something that reported over 60% of NH residents heat with deliverable fuels (oil & propane).

    My gf's parents have natural gas available on their street. But guess what, dad just installed a new oil boiler a few years ago. To convert to gas, you need to trench from the street, most of the time at your own expense. Cost of permits, then making a hole in the side of your house and running gas lines etc... Its less expensive in the short run to stay with oil.

    Then you need to get a new furnace/boiler. Same with a stove or clothes dryer, most people have electric versions. Propane stovers/dryers exist and can be easily rejetted to a natural gas config. Unfortunately having gas available doesn't mean everyone will covert even when its been available for years.

    edit: typo
     
    #25 NetWareHead, Jan 15, 2013
    Last edited: Jan 15, 2013