This blog post is an edited transcript of Episode 96 of The Property Rebel Podcast by Arsh Ellahi. Listen below:
Arsh Ellahi is the original property rebel. He has written an Amazon best seller and created the Property Investor App, the UK’s first and is an experienced property mentor. In this article he talks about something quite topical and timely at the moment, which is the increase in energy prices - and more importantly what he is going to be doing to combat this.
The government energy regulator, Ofgem, announced that there's going to be an energy price cap, which confirms that it will increase by a massive 54% or equivalent to £693 per annum from the first of April 2022. Whether you're a homeowner/ landlord, HMO owner or you're living in a property with your family, it means that there's going to be an additional cost or an increase in costs (up to £58 per month or £700 per year).
When you look at it from that point of view, you wonder if you can weather the additional £58 a month, or is this now going to keep increasing? Personally, I find it as an additional cost, this without a doubt is coming off your bottom line. Because let's face it, after you've paid the mortgage, all the other bills, you're left with your cash flow which becomes tighter with the additional cost. It leaves a bit of a bitter taste in your mouth.
There are two things that you can do - you could weather the storm and accept it's only £700 a year and you’re not gonna do a great deal. Some landlords now will do one or two things to combat this. One, they will absorb the additional cost knowing that is not that much, and every landlord in the country will have to suffer the cost. Alternatively, lots of landlords part of property forums will increase their rent over a period to cover the cost and ensure their cash flow remains the same. Now a couple of things to take into consideration, you could increase the rent like other landlords and be in line with the competition but if they are weathering the cost and you increase it, you may be deemed expensive.
I've only got a handful of properties, which are on the all inclusive model. And the chances are that I will increase the rent slightly whether I decide to increase it by £10 a month, or whether I decide to increase it marginally by £5 a month, I'll have a look at every property. I'll have a look at the tenants that we've gotten there, how long they've been there, when was their last rent increase? And I'll make that decision as to whether I need to start applying that or not. If I've got a house that's settled, and the tenants have been there 10 years and the only rental increase was last year. I think it'd be a little bit unfair for me to increase it again. However if I have not increased the rent for a couple of years then this would be the time to implement that. Scrutinize the situation.
I'm going to share some solutions. There is a thermostat called “Time:o:stat” and I think it's a great product. And this could help you cap the amount of usage in HMOs - instead of allowing the tenants to keep the boiler on constantly, it boosts it for a certain period of time (30 or 60 minutes) and once done, it allows the boiler to cut off. What this does is if the tenant wants to switch the heating on again then some intervention from them is needed, meaning that they have to get up to press the boost button, to restart it for another hour.
Lots of tenants and landlords in HMOs keep their heating on constantly throughout the day - usually the tenant’s choice and not the landlord’s. With this thermostat - if the tenant goes out, and there's no one in the house to boost, that means that the building is not going to be using unnecessary gas [and costs are saved.]
So with regards to the gas, I'm going to keep implementing and keep pushing the Time:o:stat thermostats. While there are other products out there like Hive etc., the good thing with Time:o:stat is that there are mobile apps which allow you to see what's going on in the property. I should mention that it's illegal to fully control the thermostat but if you put it in certain times where it is allowed and it gives sufficient heat throughout the day, then that's not an issue. As long as the building can get up to a certain level of degrees.
Another product I've used in one of my HMOs is the Metro Prepaid electric sub meters. Those that have followed my journey for quite a while will notice that I've been using electric sub meters in all or a large majority of my HMOs and all the rooms in those HMOs have their own energy supply or their own electricity sub meter. The reason why is because I want to make sure that the tenants are responsible for their own energy consumption.
I've gone through lots of testing models throughout my property journey and life, and I found that the more that you give the tenant - the more that they will abuse. If they're not paying for it, they have no responsibility for it. That's quite a broad claim but it's definitely something that is true. If tenants think that the rent is all inclusive and there's no fair usage clause in your policy, they will just assume that they can use as and when they want, how they want and as much as they want.
For example, they will keep the thermostat on at 30 degrees and let the house absolutely cook and you'll find is that instead of turning the thermostat down or the boiler off, they would prefer to have the windows and the doors open - which means all the heat (money) they're using for the house just flows out of the windows. It's crazy.
With regards to electricity, I've been using prepaid electricity meters called Metro Prepaid meters. These are prepaid electric sub meters that can be retrofitted to your property. So if you're worried about the energy bills going up by 700 pounds a year, etc. And you're worried that this is only the start and it could continue to increase, perhaps you may want to start putting in a measure where each of the rooms have their own electric sub meter.
Now, there's pros and cons to this. The pros are from the landlord’s point of view that you're no longer in control of the tenants going out leaving their appliances on etc. With the electric sub meters, if they decide to run a heater in their room for 24 hours, they now pay for it - resulting in careful electricity usage.
The reason why you should implement these electricity sub meters and thermostats is because you'll no longer be worried about how much the building is using because of those measures in place. I hope this information resonated with you if you've got an all inclusive model. There are measures out there.
Connect with Arsh Ellahi here: https://www.arshellahi.com/contact
Find the podcast here: https://open.spotify.com/episode/5UrsQ4Eo4XXxtquZwRwOM4?si=pA1oJqtOQKuGc5X5O7af6Q&nd=1
Find electric sub meters here: https://metroprepaid.co.uk/products/
Metro Prepaid Support