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Dave, We do the same as your friend. Almost all places around me pay water and garbage when the other utilities are not all inclusive. Since the water and garbage are city services, these must be stayed on top of. I was shocked to learn that the water authority can put a notice of foreclosure on your house for an outstanding bill; granted it usually has to be pretty behind but still... Would not want to leave that up to tenants. So essentially homeowners HAVE to be responsible for these 2 services. If you want more control, raise the rent to include all util. and pay them all yourself. Some tenants actually like the fact that they are all inclusive, although this can sometimes turn into a squabble over amount of usage - especially heat.
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