January 16, 2020
RUBS Billing Method: Is It Right for You?
The RUBS billing method allows property owners and managers to allocate resident utility expenses fairly. In this post, we review what it is, how it works and when you should use it.
What Is RUBS?
RUBS, short for ratio utility billing system, is a billing method that proportionally allocates utility costs to tenants. It’s used to bill costs for water, gas, electric, trash, cable and other services to residents – all of whom are weighted differently based on an industry-accepted formula.
The RUBS method can be managed by a landlord or property manager with pen and paper or Excel. But an easier way to do it is to work with a utility billing company which uses software to streamline the process and make it more accurate.
How Does RUBS Billing Work?
On a basic level, the RUBS billing method works by taking a property’s bill for one utility and then allocating it among residents. But you have to factor into that bill things like unit size, layout, occupancy and sometimes bedroom count.
Sometimes simply dividing the bill by one of these factors results in a fair bill. But far more frequently adjustments need to be made to achieve equitability. And there are numerous ways to do this.
Billing factors work as modifiers to account for how certain amenities in a unit affect utility consumption. For example, a washer could be used as a 1.3x multiplier on a unit’s water bill.
Number of Tenants
Let’s say you want to allocate a water bill and the occupancy method makes the most sense for your property. By allocating based on the number of tenants, a three-person unit would pay three times as much for water as a one-person unit. This assumes three people use water at a 3:1 ratio compared to one person.
In practice, this ratio isn’t accurate. Three people usually don’t use three times as much water. In contrast, a utility billing company would use what’s known as a ratio occupancy method to fine tune the billing.
Ratio Occupancy Method
Under this method, the number of occupants in a unit gets converted into a number of occupants for billing purposes. This adjustment is typically based on a set of ratios and guidelines.
For example, in its service registration forms, the Texas Public Utility Commission defines the following ratio occupancy method:
- 1 Occupant is billed as 1.0,
- 2 Occupants are billed as 1.6
- 3 Occupants are billed as 2.2
- 3+ Occupants are billed as 2.2 + 0.4 * # of additional occupants.
Using this method, Texas has defined how much each additional person increases utility usage. This, in turn, results in a fairer and more accurate bill for tenants, which makes them more likely to pay.
In addition to ratio occupancies, you could do the weighted calculations with bedroom counts if you don’t know or have a hard time identifying how many tenants there are.
In summary, RUBS isn’t just dividing up your utility bills by a simple ratio. It’s about using ratios and fine tuning to create a bill that tenants will pay.
When Is RUBS Used?
When Submetering Won’t Work
A submeter is a device that captures precise data on tenant usage for each utility. To submeter, you need to connect to a utility going into a specific unit from a common utility source. Sometimes this isn’t possible for physical or practical reasons.
For example, if the property’s water lines are underground, there’s no way to identify and isolate the lines. This is common in older apartments from the 70’s and 80’s. Properties during this time tended to have all of the kitchens and bathrooms clustered together.
While this type of design enables all units to share one utility line, it prevents a full capture on the waterlines into each unit. Because of these physical limitations, it is next to impossible to isolate and submeter the individual utility consumption.
This is just one example of how physical restrictions make it impossible to implement submeters.
If your property has a layout that prevents you from isolating the utilities as they go into individual units, you need an alternate billing method. RUBS is perfect for these scenarios. All you need to get started is the utility bill, rent roll and unit specifications.
When You Need A Quick Fix
There are a ton of great benefits for utility submetering. But getting a submetering system takes time and an upfront cash investment. And sometimes, landlords don’t have either.
But if a landlord has poor cost recovery on utility bills, they still need a solution. Otherwise, they could lose $50-100k per month, crunching NOI and cash flow.
This forces landlords into a Catch 22: the utilities are killing the property, so they’re bleeding cash. As a result, they desperately need a fix, but they have no time or money to invest in a solution.
Because of this, many landlords turn to RUBS because it allows them to start recovering money immediately. Especially if they let a utility billing company manage it.
RUBS can be set up in a week or less and sometimes as little as a day. And because it’s all handled with software, there’s no heavy lifting on the front end: no upfront investment, ordering of parts, installation or maintenance. All a landlord has to do is share the rent roll and utility bills.
A utility billing company can have you recovering expenses in a week or less. From there, you can decide to stay with RUBS or use it as a stepping stone to submetering.
RUBS is a cost-effective and low-risk way for property owners and managers to recover utility expenses. There’s no upfront investment and you can start billing in a week or less. And if you want the quickest, most reliable setup, make your life easier and work with a utility billing company.