3 Reasons Why Submetering Is Worth It for Multifamily Property Owners

Submetering allows multifamily property owners to fairly allocate gas, water and electric costs to individual units within their multifamily properties. It promises higher levels of cost recovery, but it first requires significant initial investment, begging the question: Is it worth it? Short answer: Yes. Keep reading to learn why.  

Before we dive into whether utility submetering is worth it, we first need to discuss the differences between RUBS and submetering.

Submetering and RUBS: What’s the Difference?

When it comes to multifamily utility billing, multifamily property owners and management firms have two main options: submetering or RUBS (short for ratio utility billing system). Let’s define both systems.

  • Submetering – With a submetering arrangement, each unit or common area has its own utility meter beyond the master meter. This allows you to get exact readings on utility consumption. With this information, property owners and management firms can generate accurate bills for each unit on the property, ensuring better utility cost recovery each month.
  • RUBS – This utility billing method proportionally allocates costs for water, gas, electric, trash, cable and other services to residents based on an industry-accepted formula. It can be managed through methods as simple as a pen-and-paper mathematical formula, but an easier and better way to do it is to work with a utility billing company that uses software to streamline the process and improve accuracy.

3 Reasons Why Submetering Is Worth the Investment

It’s important to note that submetering requires an initial investment. While your property will be outfitted with master meters owned by their respective utility billing companies, property owners own the submetering system. Plus, submetering installation can be complex. It’s best left to licensed submetering professionals.

This initial investment in hardware and labor may turn some property owners off, but it’s still well worth it for many multifamily properties. Here are three reasons why.

#1: Submetering Increases the Cap Rate of Your Properties

The most important reason why submetering is worth the investment is that it improves the profitability or cap rate of your property by reducing costs.

When multifamily properties include utilities in rent or charge a flat utility fee, they risk coming up short on recovering those utility costs. Utility usage varies each month, and charging a flat rate can’t possibly cover those costs.

With submetering, you reduce your operating expenses each month by recovering more of that variable cost. This increases your net operating income (NOI) each month, which has a direct impact on your cap rate.

#2: Submetering Reduces Utility Consumption

Submetering puts residents in charge of their utility usage. When they get billed for their usage each month, they can see exactly how much utilities they use each month.

Residents who are responsible for their utility usage tend to use less utilities. This reduces the overall utility usage in your building or apartment complex, further reducing your building’s financial exposure.

Plus, that reduction in usage will lower your building’s carbon footprint. Depending on your local area, that reduction in carbon footprint could allow you to take advantage of environmental incentives.

#3: Submetering Offers Detailed Metrics and Actionable Analytics

Submeters measure the utility usage of each unit. That means they create a lot of utility data. Smart property owners and management groups will take advantage of this as an added value of their submetering system.

Overtime, that usage data will turn into trends, making any issues like leaks or unusual usage patterns easier to spot. This means property owners can make proactive improvements to their multifamily properties informed by analytics, while at the same time reducing exposure by handling any issues before they become property-wide problems.

RUBS: An Alternative When Submetering Is Impossible or Impractical

Submetering might not be feasible in your building due to its age or the way utility infrastructure is laid out. The good news is you can still recover a majority of your utility costs with RUBS.

RUBS is easy to implement and cost-effective. You don’t need to purchase any special equipment. All you need is an allocation formula that takes unique building factors into account, such as:

  • Unit square footage
  • Number of occupants
  • Amenities
  • Number of bedrooms and bathrooms

RUBS is less precise than true submetering, and it doesn’t allow for utility usage data collection. At the end of the day, costs are estimated, giving residents less control over their usage and bill.

Also, some states generally do not permit RUBS billing, such as North Carolina, Mississippi and Massachusetts. Others have limitations around RUBS billing, such as Florida (depending on the county) and Delaware (for newer systems).

Conclusion: Submetering Is Worth It

At the end of the day, if you’re looking to get the most out of your multifamily property investment, submetering is definitely worth it if your property is able to be submetered. While this method does require an initial investment, when you install the right submeters, you typically see a return on that investment in the form of recovered costs in 6 to 18 months.

Additionally, those submeters should last around 10 years before they’ll need any major repair or replacement – meaning you get 9 solid years of full cost recovery.

If you want to ensure your submetering investment is truly worth it, you need to work with a utility billing firm. Utility billing experts (like the ones at Synergy Utility Billing) can help you implement a submetering system that adds value to your property by recovering utility costs for years to come.

Interested in exploring your submetering options? Get in touch with the team at Synergy. Our team is here to help you narrow down the right utility billing method for your properties.