Definition of "Utility"
In order to determine what is the definition of utility, we only need to look at what the term comes from. The word utility can be used to describe something useful and when looking at what is utility in real estate we see amenities that provide functionality and the actual ability to use properties based on our modern lifestyle. Thus, utility is an additional service that is required so that the property can be fully functional. These services are paid on a monthly basis and include services such as electricity, natural gas, air conditioning, sewage, water, trash, and, based on the evolution of modern living needs, sometimes internet and cable as well.
In other words, the term utility covers services provided to a parcel of land by public utility companies, such as gas, water, electricity.
Why are Utilities Important in Real Estate?
Whether you are interested in rental properties or are looking to purchase a home, the cost of utilities can tell us a lot of things. When the landlord determines the price they charge tenants for rentals, they keep in mind the cost of utilities because these monthly expenses influence your return on investment and profit. Utilities can also be offloaded to the tenant, making them responsible for the monthly costs from gas, electricity, water, etc. However, by not passing the utilities responsibility, they make sure that all the bills are paid on time.
Utilities in Commercial Real Estate
Regarding commercial real estate, utilities are included in the operating expenses as they are paid out-of-pocket and impact the Net Operating Income (NOI). These costs are split between the multiple commercial tenants through the pro-rata method and come as a cost added to the monthly rent. The cost of utilities and other operating expenses is split based on the square footage of the space rented for common areas. Otherwise, and mainly if it can be determined how much each renter spends, they each pay the amount of water, gas, and electricity they use.
Popular Real Estate Terms
Measurement of investment return that relates current income to the investment cost. Example: Brian Whyke bought a parking lot for $150,000, which generates annual revenue of $90,000, ...
Method used by appraisers and investors to evaluate a level of payment income stream for a fixed period of years predicated on a specific interest rate. ...
Retail businesses next to each other with common walls on each side and the same roof. ...
Room that is fit for living in. the building in which the room is located conforms with the building code and has a certificate of occupancy. Usable for all purposes, but does not include ...
Determines the ability of soil to absorb and draw down water. A percolation test is essential to determine the location of a drainage field for waste disposal. ...
In between, intermediate, intervening; passing an interest from a principal to a second party and then to a third party. ...
Contract containing provisions of the insurance policy specifying who the parties are, what amounts and due dates, deductibles, time period, ceilings, kind of property., location of ...
When a debtor defaults on a loan for which a deed of trust is given, the trustee is required to have a sale of the real estate security for the benefit of the lender. A deed of trust is ...
Person or business that benefits from the work of another person or business. The recipient has not compensated the other party for this gain. In law, the one being enriched at the ...
Have a question or comment?
We're here to help.