April 14, 2021
Utility Billing: Frequently Asked Questions
Utility billing is a powerful tool for multifamily property owners looking to recover utility expenses and improve their NOI. In this post, we answer the most common questions adopters have before getting started.
Why Is Utility Billing Important?
The rising costs of utilities has placed an increasingly large fiscal strain on landlords and property owners. The cost of including public utility services in rent can easily add up to tens and hundreds of thousands of dollars per year, diminishing the landlord’s net operating income.
As a result, more and more landlords are charging residents for their utility usage, separate from their rent.
But owners who want to charge residents for their utility usage are often faced with a quandary: Their properties are master metered by the utility provider – and there are usually only one or two meters for the entire property. Without the ability to take measurements for individual units, landlords have no way to recover expenses.
What Are the Benefits of Utility Billing?
Submetering resolves this problem by giving the landlord the ability to charge individual residents for their utility usage. This enables them to fairly allocate utility costs among residents and start recovering expenses.
In addition to dramatically improving utility cost recovery, this is shown to:
- Reduce unnecessary water, electric and gas usage
- Reduces utility consumption by as much 35%
- Decrease tenant turnover
- Improve property values
The latter is particularly important, as a rough estimate of property value can be determined through the formula:
NOI/Market Cap Rate = Property Value
The greater the NOI, the greater the property’s value. And the better the utility cost recovery, the greater the net operating income.
What Types of Properties Use Utility Billing?
Landlords use utility billing to recover expenses for a number of different types of properties. While there are new applications emerging every day, these are the most common:
- Multifamily apartments
- Homeowner’s associations
- Commercial real estate
- Mobile home communities
How Does Utility Billing Work?
Utility billing is a service offered by utility billing companies, also known as RBCs (read, bill, collect). It involves three steps:
- Read: identify the total consumption for each unit
- Bill: create and distribute bills to tenants
- Collect: receive payments for bills from tenants and remit the money to the property owner.
But for any of this to happen, you need a way to create bills that are fair and that tenants will pay. There are two primary methods for accomplishing this: submetering and RUBS.
What Is Submetering?
Utility submetering allows property owners and managers to allocate utility costs fairly among residents by measuring each unit’s true consumption of water, gas and electricity.
The RBC does this by installing a meter between the master meter for the property and each tenant’s unit. This allows utility billing companies to obtain accurate data for every tenant’s consumption for every utility. And with precise consumption data, you can bill back tenants for exactly what they consume.
While submeters offer a number of great benefits, they do require some considerations before you can deploy them.
- Submeters have to be properly installed to ensure accurate reads
- Sometimes it isn’t possible to install submeters for physical or practical reasons
- Submeters provide a significant ROI, but do require an upfront investment
- Designing and installing a submeter system takes time to configure
Properties that can’t submeter for any of the above reasons need an alternate billing method. RUBS is perfect for these scenarios.
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 which 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.
RUBS is ideal for property managers who need a quick fix so they can start recovering utility costs quickly.
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.
Does the RBC Pay the Utility Bill for Me?
No. The RBC has no relationship with the utility companies. You’ll continue to pay your bill and the RBC will collect payments from tenants that you use to pay your utility bills.