March 5, 2020
Ultimate Guide to Utility Submetering
Managing utility services, without a dedicated system in place, costs property managers and landlords anywhere from tens to hundreds of thousands of dollars per year.
Landlords that assume this burden themselves must recoup costs fast enough to cover expenses. All while billing tenants in proportion to their usage. If they don’t, recovery rates drop, properties bleed cash and net operating income suffers.
Utility submetering offers a way around this by helping landlords allocate gas, water and electric costs fairly to every unit – even in multi-unit properties. In this guide, we review exactly how utility submetering works and how it benefits landlords and property managers.
Part 1: What Is Utility Submetering?
Many residential properties have a master meter that utility companies use to track and bill utility consumption. The problem, however, is that master meters don’t track individual usage. This makes it very difficult for property managers to charge each tenant based on what they consume.
A submeter is a device that helps solve this problem. It gets connected to the utility line for each individual unit, capturing precise data on tenant usage for each separate utility.
Submetering is the best solution for divvying up utility usage accurately among tenants and recovering expenses efficiently. It also provides landlords vital data for utility system troubleshooting and leak detection, gives residents greater control over their utility usage and costs and, lastly, helps increase property value by adding physical infrastructure.
While submetering has a ton of great benefits (which we’ll get into), it does come with a few considerations. Namely, it’s more costly to set up than alternative billing methods like RUBS. And some older system configurations may not allow for submeter installation. Finally, certain states might limit the ability to submeter utilities, so not everybody can use it.
What Utilities Can I Submeter?
Water, gas and electric can all be submetered. But it does depend on the property. You need to be able to isolate and capture a utility going into a specific unit from a common utility source. Sometimes this isn’t possible for physical or practical reasons. And even when it is, there could be financial or budgetary constraints that inhibit implementation.
For example, some properties have electric lines that make it hard to isolate the breakers for individual apartments. If this is the case for your property, you’d have to look at other billing options for that utility.
What Types of Properties Can I Submeter?
Apartments are the biggest users of submetering. But any type of multi-unit property can take advantage of it. Property types that can be submetered include:
- Student housing
- Homeowner associations
- Multifamily properties
- Military housing units
- Water districts
- Mobile home parks
- Commercial properties
- Other multi-unit dwellings
What if I Can’t Submeter a Utility?
Submetering is a great way to capture accurate data on utility usage and bill tenants fairly. But what if financial or logistical constraints don’t allow it? You have a few other options.
The most common one, RUBS, works by proportionally allocating costs for utility bills. Industry-accepted allocation factors include unit square footage, occupancy, amenities and number of bedrooms and bathrooms. RUBS is simple and quick to deploy and also costs less upfront than submetering. However, it is also less precise.
It’s also possible, and popular, to use a hybrid approach. This involves submetering for utilities where you can submeter and using RUBS for utilities you can’t submeter.
Part 2: How Are Submeters Deployed?
Submeters can transform a property’s utility billing and cost recovery. But to really capture the benefits, you need to deploy the system properly. Here’s what you need to know.
Consultation and System Design
Before anyone breaks out the submeters, assess the property and determine what it needs.
The priority of utility billing is to recover all the utility costs for the owner. To do that, you need to create a charge that residents will pay. The purpose of your solution is to make that not just possible, but easy to do. That’s where front-end consulting and system design come in.
Many decisions have to be made during the consulting process – billing method, installation logistics, manual or automatic reads and more. These decisions determine the long-term success of your submeter deployment. If you go
it alone, you risk making the wrong choices. Because of this, it’s often a good idea to work with a utility billing company. One that will deploy an effective system and bill a payable and accurate charge.
Utility billing set up ranges from straightforward to complex. Submetering takes longer because the provider needs to physically install the submeters. In contrast, an alternative billing method like RUBS relies on software and doesn’t require installation. This means it can be set it up in a week or less.
However, the quality of installation can differ from vendor to vendor. A poorly installed submeter solution can lead to lost collections and reduced efficiency. That’s why getting the most out of your solution comes down to two factors:
The quality of a submeter install relies on the skill of the person or team installing it. The use of certified field service technicians is a critical yet often overlooked part of submeter installation. Many companies just send their meters to plumbers to install. But plumbers are not trained to install submeters for optimized reads. The same goes for your
internal staff. Certified technicians who specialize in this type of install can ensure you get consistent reads for years.
When it comes to submetering, cutting upfront costs on equipment will cost more in the long run. If you use cheap submeter equipment and it breaks, you could miss months of reads and, consequently, collections. High-quality equipment provides longevity and consistent reads to drive your NOI and ROI for years.
Another consideration is whether the submeters are read manually or automatically. Automatic meter reading (AMR) systems automate the collection of utility data from metering devices. While they have a higher upfront cost, AMR systems offer long term savings by reducing the labor associated with manual reads. They also provide near real time data on utility consumption.
Ongoing Billing and Maintenance
Once the meters are in place, the real work begins. Every month, you must read the meters (automatically or manually), use that data to create and send invoices and then collect payments from tenants.
Additionally, you have to maintain the quality and performance of the meters. Submeters are sturdy and long-lasting, but, like any equipment, they require upkeep to maintain a certain level of performance. Because of this, proactive maintenance is critical to ensuring your submetering system lasts its lifecycle.
The ongoing billing and maintenance take serious time and expertise to handle every month. As a result, many property owners outsource the job to utility billing companies.
Once the submeters are in place, you now have access to accurate, rich data on the utility consumption of the individual units on your property. And you can use it to further improve your property.
There are third-party vendors that can help you do this, providing bill auditing and bench-marking services. For example, they might compare your building’s performance to similar properties to find ways to reduce the bill. Some skilled utility billing companies also offer these services. They can even go a step further, checking for consistent percentages, monitoring for leaks and comparing last year’s billing period to the current bill. All to verify the property is performing well over time.
Submetering data makes it possible to analyze discrepancies, solve problems and catch errors through property monitoring. It also keeps expenses under control, which is vital to increasing NOI.
Part 3: Who Provides Utility Submetering?
There are a lot of people who do submetering. But the effectiveness of your submeter deployment is going to depend on the expertise of the person installing the meters and running the system.
Some landlords go the DIY route and install and run the submeters themselves. But while keeping things in-house can be attractive, there are a few pitfalls. The thing is, it’s a ton of work. From design and installation to upkeep and analytics, running your own submeters is like a full-time job. Most property owners and managers don’t have that kind of time.
Utility billing companies or RBCs (read, bill, collect) offer utility submetering as a service. They’ll manage the installation of the submeters, then handle the ongoing work of reading the submeters, billing tenants and collecting payments.
In addition to submetering, a quality RBC will offer alternative billing services like RUBS and, perhaps most critically, solid customer support. The right partner can help you increase NOI, average tenant stay and cost recovery.
But not all utility billing companies offer the same service levels and solutions. And if you pick the wrong one, you’ll end up replacing one headache (DIY) with an even bigger one. So, when conducting your search, look for these factors:
- Flexible billing methods
- High cost recovery
- System consulting and design
- Utility monitoring
Part 4: Is It Legal in My State?
Utility billing laws are complex and handled at the state and local level. Legality depends on the state, city or county you’re in.
Identifying whether you can implement submetering for your property is complicated. It’s typically best to contact a utility billing and consulting firm. However, it is possible to get a general idea of how your state’s regulations affect your property.
There are two categories of utility billing laws that most states fit into.
Category 1: Legal
In Category 1 states, submetering and RUBS billing are both legal for residential water, wastewater, electric and gas. However, legal doesn’t mean unregulated. If you’re thinking about implementing submetering, you should look into the specific regulations for your state. In some states, the billing of certain utilities is allowed but may be prohibited in certain regions or for certain providers.
States with these conditions include:
- West Virginia
Category 2: Legal with Restrictions
In contrast, Category 2 states allow for some utility submetering and billing methods but not others.
For example, Louisiana allows electric and gas submetering, as well as RUBS billing and trash allocation. However, submetering and RUBS for water and waste water are prohibited. If you wanted to submeter in a state like Louisiana, you could do so for electric and gas, but would have to find different options for other utilities.
States with these conditions include:
Part 5: How Does Submetering Benefit Properties?
Now that you’ve learned more about submetering and how it works, you’re probably curious about what it can do for your property. Here are the five biggest benefits.
Net operating income (NOI) is a key metric for determining the financial success of a property. It measures a property’s financial performance based solely on what it costs to run it.
As an operating expense, utilities are notorious for killing bottom lines. Properties that fail to recover utility costs bleed thousands to hundreds of thousands of dollars per month.
One way to increase NOI, then, is to improve utility cost recovery. And submeters are great for this. Submeters provide detailed data on unit utility usage. This information makes it easier to account for and bill back the utilities consumed by tenants. It can also help detect main line leaks that would otherwise go unnoticed and drive up expenses for months. By cutting operating expenses in this way, submeters increase a property’s NOI, improving its overall performance.
Increased Property Value
NOI isn’t just important for identifying the overall success of a property. It’s also tied to property value. A property’s rough value is influenced by the relationship between NOI and Market Cap Rate.
The greater the NOI, the greater the property’s value. And because submeters help NOI, they can increase your property value.
Submeters for multifamily properties have a delayed, but significant, ROI. The installation has an upfront cost, but that expenditure is usually recovered quickly. Assuming you’re not collecting already, you can typically recover the cost in the first 6-12 months; 18 if it’s an expensive meter.
The thing is, submeters last a solid 10 years. That means you’re making money for at least 9+ years. That’s roughly a decade of long-term ROI from one upfront investment.
Property owners that manage their own bills take on significant liability. A $50k per month utility bill is a huge expense to recover. If you can’t recoup, your property will lose cash, cutting up to five figures off the bottom line.
Fortunately, there’s an easier way to manage such a liability – share it with the tenant. Submetering makes tenants responsible for their own utilities. And once they’re responsible for them, tenants conserve utilities across the board. Studies have shown that residents who receive individually calculated utility bills decrease utility usage by as much as 35%.
Implementing Submeters: The Verdict
Submetering can help landlords recover their gas, water and electric costs on multi-unit properties. With the right partner and submetering system in place, you can turn the burden of utility collection into an opportunity. One that increases cost recovery, NOI and property value – all while allowing you to focus on other things.