What Multifamily Property Investors Should Know About Utility Billing

Utility costs can have a major impact on the bottom line of your multifamily property investment. In this blog, we cover the basics of what property investors should know about utility billing to ensure your investments are sound.

Multifamily property investors must consider many factors when searching for new multifamily investment opportunities. One of the most important factors, utility billing, can often get lost in the shuffle. However, this is not something property investors can afford to overlook.

Behind mortgage and property taxes, utilities are the third largest expense multifamily property investors incur each month. And unlike mortgage and property taxes, utilities costs aren’t fixed, making cost recovery absolutely critical. Because when utility recovery rates are low, NOI and profitability suffer.

The best way to recover utility costs isn’t through a flat rate utility fee or including utilities in rent. It’s through billing residents. Here are the most important things multifamily property investors should know about billing back their residents for utility usage.

#1. Submetering is the Most Accurate and Effective Utility Billing Method

Submetering is a utility billing system that allows property owners and managers to fairly allocate gas, water and electric costs to individual units within a multifamily property.

In 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, you can generate accurate bills for each unit on the property, ensuring better utility cost recovery each month.

Because each unit is being measured for its usage, submetering allows for the most accurate utility bills. That data gives your team greater insights into utility usage across a building or your entire multifamily investment portfolio. In addition to that, residents tend to use less utilities when made responsible for the bill. This lowers the overall utility usage for your building or portfolio of properties.

The one caveat with submetering is that it requires an initial investment in the submetering hardware and installation. Plus, not every property is suitable for submetering. The good news is there is an alternative.

#2. Ratio Utility Billing System (RUBS) is a Great Substitute for Submetering

RUBS is a utility billing method that proportionally allocates costs for water, gas, electric, trash, cable and other services to residents based on an industry-accepted formula. It’s normally used when space, system age, configuration or complexity makes it impossible or prohibitively expensive to install submeters.

While not as accurate as true submetering, RUBS provides property investors with a way to increase their utility cost recovery without the up-front investment in submeters.

#3. Regularly Audit Utility Bills and Usage Data

Once you have a utility billing system in place, it’s important to ensure your investment in utility billing remains a good one. To do this you’ll need to conduct regular utility billing audits.

Utility billing audits are a great way to maintain the value of your property investments by finding areas for improvement. Auditing your data gives you better insights to your utility allocation, collection rates and any potential infrastructure issues that could be costing you and your investors. With these insights, you can prioritize any projects needed to further improve cost recovery. This allows you to make your multifamily properties more energy-efficient and further increase the value of your portfolio

#4. Convergent Billing can Simplify the Utility Billing Process for Residents

Another tip to keep in mind as you implement utility billing across your property portfolio is convergent billing. Convergent billing is when a utility billing service includes all applicable resident charges – like metered utilities, trash collection, cable, internet and more – on one single bill.

The main benefits of convergent billing include:

  • Consolidated resident expenses: When resident expenses are all in one bill, it makes it easier for them to keep track.
  • Improved cost recovery: Convergent billing makes billing cycles more predictable for your residents. This in turn makes it more likely they will pay their bills on time.
  • Increased cashflow: With increased cost recovery comes more reliable cashflow each month.

#5. Vacant Cost Recovery Can Help You Further Recover Costs

Vacant cost recovery is the process of recovering utility costs from units that have not had utilities transferred into a new tenant’s name. It’s a small but important part of a greater utility billing strategy.

If a unit does not have a name on the utility bill, then that monthly bill will get sent to your investment group. If you’re receiving bills for occupied units, you or your team must remedy the situation to recover that utility costs. Here’s how that usually works:

  • Determine how many months of payments were missed.
  • Inform the tenant and make sure they transfer the bills to their name.
  • Bill back missed payments to the resident along with any penalties if your local regulations permit.

With vacant cost recovery processes in place, you can ensure your property investments are recovering as much utility cost as possible. However, if you have a large multifamily property investment portfolio, handling vacant cost recovery across your entire portfolio will take up lots of time. Not to mention all the other work involved with utility billing.

The good news is there are utility billing companies that can do this work for you and your team.

#6. The Right Utility Billing Provider Makes Cost Recovery Achievable

As you start to take stock of your utility billing practices across your property portfolio, don’t discount the value of a utility billing partner. The right provider can help you maintain the value of your property investments through implementing utility billing systems that follow best practices and are optimized to recover as much utility cost as possible.

The right utility billing partner can be well worth the investment because utility billing is about taking the variability out of utility cost, shoring up your multifamily property investments. Working with a utility billing partner can make that goal a reality.

Looking to start utility billing across your multifamily property investments? Talk to Synergy. Our team is here to help you get started.