RUBS Vs. Submetering for Multifamily Properties
Paying household utilities is an unavoidable responsibility of residents. However, determining how much each tenant pays for utilities can get complicated in multifamily settings. While electricity is usually submetered, with each tenant paying for their own electricity usage directly to the local utility, other services such as water, wastewater, gas, and trash removal are typically charged at the aggregated multifamily property level. The property owner/manager then has to decide how best to spread the cost of these services to the tenant community over and above the monthly rent. In the absence of accurate measurements of usage levels by each tenant, Ratio Utility Billing System, whenever allowed, is often the method for allocating these service costs to each apartment.
What is RUBS, and How is it Calculated?
A Ratio Utility Billing System (RUBS) is a formula-driven cost allocation method that allows property owners to recapture some of a property’s utility expenses from the tenants. RUBS can be administered as a fixed monthly per-door expense or vary each month based on the varying aggregated monthly utility expenses for the property.
Per apartment, RUBS expense may be based on one or more of the following parameters:
· Number of bedrooms in each apartment
· Number of occupants in each apartment
· Square footage of each apartment
· Other factors that could be reasonable proxies for tenant consumption levels
State and local regulations are key in deciding how and if RUBS may be administered. One overarching regulation is that cost recovery through RUBS cannot exceed the actual total utility expenses born by the property owners, plus the administrative expenses of managing the cost allocation system.
Benefits of using RUBS for Multifamily Properties
A viable alternative when submeters are not installed
By spreading a property’s utility service expenses to the tenant community, RUBS allows the property owner to recapture some of these expenses and increase cash flow and Net Operating Income (NOI).
Simple to administer
RUBS can be pretty simple to administer by the property manager if set at a fixed monthly level or outsourced to a third-party billing service provider.
Disadvantages of using RUBS for Multifamily Properties
RUBS often falls well short of 100% recovery
Since property owners are not allowed to recover more than 100% of their actual utility expenses, the RUBS rate is often set well below 100%. Furthermore, with seasonal variances, cost increases, and unusual events such as leaks, RUBS recovery rates often trend downwards with time.
Without the active monitoring and periodic adjustment of RUBS rates over time, the RUBS recovery can easily fall below 60% of utility expenses.
Ratio Utility Billing System is unfair to tenants
RUBS spreads the cost formulaically across the tenant community, irrespective of the actual consumption level of each tenant. With RUBS, most tenants essentially end up subsidizing the few taking hour-long showers or letting leaky toilets go without service. Tenants are charged for utility recovery even when travelling for extended periods. Property managers often receive tenant complaints about the unfairness of the RUBS setup, and some states/municipalities outright disallow RUBS recovery schemes.
RUBS does not incentivize responsible consumption
As tenants do not directly bear the cost of their actual utility consumption decisions, they have no incentive to save water or adopt eco-friendly habits.
Data shows that properties with water submetering produce over 20% reductions in tenant water consumption.
A Better Solution?
Water submetering plus a facilities fee can deliver 100% cost recovery.
Water and wastewater typically constitute the bulk of a property’s utility expenses, as electricity is generally submetered and already paid by tenants. An ideal solution is to have tenants pay for their own water usage through submetering and then add a fixed monthly facilities/amenities fee to cover other ancillary costs such as trash collection, pool, and common area expenses.
Historically, water submetering for existing properties has been unfeasible without major replumbing or cost-prohibitive renovations. With advances in technologies such as ultrasonic metering and the IoT (Internet of Things), new solutions are now available to help optimize operating expenses and NOI fairly and sustainably.
Dune’s smart water submetering provides a hassle-free, no plumbing, no pipe-cutting solution that seamlessly integrates with leading property management software platforms. For more information, reach Dune today!