Rising utility costs are eroding rental property returns in ways many investors overlook, according to Jillian Kemmerer, who manages more than 400 rental properties at Luxe Homes Real Estate LLC. “Utility costs are skyrocketing,” Kemmerer says. “And if the landlords have to absorb those costs, there’s really no way to mitigate that.”
This pressure is most acute in multi-unit properties where utilities are shared or paid by the landlord. Kemmerer says these properties are seeing shrinking margins, undermining the return projections many investors rely on.
For landlords managing properties with shared utilities, rising costs are only part of the challenge. Fairly dividing bills among tenants is often impossible when household sizes differ. “If I have two units sharing water, how am I going to split that bill reasonably?” Kemmerer asks. “You’re always going to have one tenant saying the other used more water.”
To avoid disputes, landlords frequently absorb the cost difference. “Usually, landlords are absorbing that,” she says. “That’s probably the biggest complaint I get – the utility cost, if the landlord is paying it.”
This practice quietly eats into cash flow, especially as utility inflation accelerates across electricity, gas, and water. The cumulative impact on net operating income can be significant, yet it is often excluded from original investment calculations.
As utility bills rise, Kemmerer says experienced investors now consider utility structure a key factor in property selection. She advises, “If you’re going to buy a rental property, find the properties that have split everything so the tenants pay their rent and all of their utilities, and you just have to make sure the property is safe and habitable.”
Properties with separately metered utilities, where tenants pay their own bills, are drawing more interest and selling faster. In contrast, properties with shared or landlord-paid utilities are facing greater scrutiny, as investors recognize the risk to their margins.
This shift in investor priorities could affect property values and development decisions. If utility structure becomes a central factor in investment decisions, properties that cannot be easily retrofitted with separate meters may lose value.
Kemmerer challenges the common belief that multi-family properties always deliver higher returns. “I have managed single-family properties that make way more money than even multi-families,” she says. “Everyone assumes multi-family is where you’re going to make the money.”
She points to utility costs as a key reason multi-family economics can disappoint. “Probably the biggest thing people glance over but don’t always consider would be utilities,” Kemmerer notes.
Her experience suggests that investors should closely analyze utility structures and cost trends, rather than relying on general assumptions about which property types are most profitable.
If utility costs continue to rise faster than rents, the economics of some rental property types could become unsustainable. Properties that once offered acceptable returns when utility inflation was low may now fall short of investor expectations.
This trend could affect not only individual investments, but also the overall supply of rental housing in markets where landlords typically pay utilities. If these properties become unprofitable, landlords may leave the market or convert rentals to other uses.
Kemmerer’s firm now emphasizes utility structure analysis in its investor advisory work. “Everything’s going up – electricity, gas, water,” she says, describing utility evaluation as a critical part of investment due diligence.
For landlords already holding properties with shared or landlord-paid utilities, options are limited. Retrofitting older multi-unit buildings with separate meters is often too expensive, and passing utility costs to tenants may violate leases or local laws.
Kemmerer recommends that new investors prioritize properties where tenants pay their own utilities from the start. This approach shields owners from both current and future utility inflation.
Whether this shift in investor behavior will lead to broader changes, such as new construction standards requiring separate metering or regulatory reforms allowing easier utility cost pass-through, remains uncertain. For now, Kemmerer’s experience shows that utility structure has moved from a minor operational detail to a central concern in rental property investment.
As utility inflation outpaces rent growth, landlords who fail to account for these costs risk quietly losing profits. Investors who focus on utility structure can better protect their returns and adapt to a market where every operating expense matters.
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