Rental Property Utility Billing: Understanding RUBS and Alternatives

RUBS (Ratio Utility Billing System) has emerged as a popular solution for multifamily property owners seeking fair and efficient ways to allocate utility costs.

By utilizing RUBS, property managers can streamline billing processes, promote responsible resource consumption, and enhance the financial performance of their apartment buildings.

Let’s explore the fundamentals of RUBS to empower owners to make informed decisions about this system's implementation.

Ratio Utility Billing System Explained

Multifamily properties frequently encounter challenges when managing utility charges for units that cannot be individually submetered.

While submetering has traditionally been preferred, the physical separation of utilities can lead to complex and costly issues.

Another alternative is to pay utility costs as an additional monthly fee on top of rent. However, the variability of utility pricing across different locations presents a significant drawback to this approach.

Additionally, a resident may not be aware of their individual utility usage. To address these challenges, RUBS offers an alternative solution.

How Do RUBS Utility Bills Work?

The RUBS billing method involves allocating a utility bill among the residents.

However, it's important to account for various factors like units, occupants, and the number and size of bedrooms. Simply dividing the bill typically based on these factors may not always result in a fair utility bill.

Achieving an equitable allocation often requires making multiple adjustments, which can be done differently.

How to Calculate Utility Costs using RUBS

An example of how to implement RUBS in apartment utilities involves considering factors like average unit occupancy. One common approach essentially divides electricity and water charges among tenants to estimate water bills.

Ratio Occupancy Method

The ratio occupancy method is a commonly used approach within RUBS for allocating utility charges in multifamily properties. This method takes into account the number of residents in each unit to determine the proportional share of the utility costs.

In the ratio occupancy method, a baseline ratio is established by dividing the total number of residents in a property by the total number of units. This ratio represents the average number of occupants per unit. Each unit's utility charges are then allocated based on its occupancy ratio compared to the average ratio.

For example, let's consider a property with 50 units and 100 residents. The average occupancy ratio is two residents per unit. If one unit has three occupants, its occupancy ratio would be 1.5 (three occupants divided by two occupants per unit). This ratio is then multiplied by the total utility charges to determine the allocated amount for that unit.

This method ensures that units with more occupants, who likely consume different utility types, bear a proportionate share of the expenses. It provides a fairer allocation of utility charges compared to a simple equal division among units, as it accounts for variations in occupancy levels.

It's important to note that the ratio occupancy method requires accurate and up-to-date information about the number of occupants in each unit. Property managers may need to periodically verify occupancy or rely on self-reporting by tenants to ensure effectiveness of the method.

Benefits of Implementing RUBS

There are numerous benefits to implementing a RUBS program for your unit. Using the RUBS formula helps you do the following:

• Avoid meter installation
• Improve the cost-effectiveness of monthly utility bills for tenants
• Incentivize tenants to report maintenance problems
• Promote conscious energy use
• Increase property value

RUBS is also fast to implement, so you and your tenants can start saving money through its adoption quickly.

How to Choose the Right Utility Usage Strategy

Choosing the right utility management strategy involves evaluating certain criteria to determine the most suitable approach for efficiently and effectively managing utilities within apartment buildings. We'll discuss these criteria more below.

Property Type and Size

Consider property type and size. For example, a small residential complex may benefit from submetering, while a larger multifamily property might find a ratio utility billing system more practical.

Legal and Regulatory Requirements

Familiarize yourself with local laws and regulations related to utility management. Some areas have specific rules governing submetering, RUBS, or other utility billing methods. Ensure compliance with these requirements when choosing a strategy.

Property Configuration and Infrastructure

Property configuration and infrastructure are also worth thinking about. Submetering may be easier in newer constructions or properties with individual utility meters already in place. However, the RUBS method can be a fair alternative if submetering is not feasible.

Resident Base and Preferences

It's always good practice to keep the preferences of your resident base in mind as well. Current tenants may prefer an individually metered system for an accurate utility bill, while others may find RUBS more convenient. Understanding the resident's preferences can help determine the most suitable strategy before you choose to install meters or adopt RUBS.

Cost Considerations

Submetering may require upfront investments in metering equipment and ongoing maintenance costs. RUBS, on the other hand, typically involves administrative and billing expenses. Consider the financial implications of each option.

Accuracy and Fairness

Submetering offers precise measurements, while RUBS employs allocation methods to distribute costs based on factors like unit square footage. Assess the accuracy and fairness of each approach.

Drawbacks of RUBS for Multifamily Property Owners

No solution is perfect for every different type of property. RUBS is an excellent solution for many, but it has the following drawbacks that should be considered too:

• No direct control over utility costs
• Disproportionate distribution
• More time-consuming and complex compared to traditional methods
• Potential resident disputes

Keep these considerations in mind when deciding what is most cost-effective and feasible for your properties.

RUBS Income in Commercial Real Estate

While RUBS is commonly associated with multifamily properties, it can also be applied to certain types of commercial real estate, such as office buildings, retail centers, and mixed-use developments.

In commercial real estate, RUBS income is derived from the additional utility charges passed on to tenants based on their proportionate share of the overall utility costs. The property owner or management company calculates and bills tenants for their share of utilities, typically using factors such as square footage, occupancy, or other predetermined allocation methods.

The implementation of RUBS in commercial real estate can provide several potential benefits. It allows landlords to recover some of their utility expenses and offset operational costs.

RUBS income can contribute to the overall financial performance of the property, increasing its net operating income (NOI) and potentially enhancing its overall value.

How to calculate RUBS income in commercial real estate

Since residential and commercial real estate differ, here are the steps for calculating RUBS income within the context of commercial real estate specifically:

1. Collect accurate and detailed utility expense data for the property, including electricity, water consumption, gas, or any other applicable utility types.
2. Decide on the allocation factors that will be used to distribute utility expenses among tenants. Common allocation methods include square footage, occupancy levels, or a combination thereof.
3. Calculate each tenant's proportionate share of utility expenses based on the chosen allocation factors.
4. Add the RUBS charges to the tenant's monthly invoice or billing statement.

Alternatives to RUBS

When it comes to utility management in real estate, there are several alternatives to the RUBS ratio utility billing system that landlords and managers can consider. These alternatives offer different approaches to allocating and managing utility costs.

Submetering

Submetering involves installing individual utility meters for the specific unit or tenant. This allows for precise measurement of each unit's utility consumption, enabling tenants to be billed directly based on their actual usage.

Submetering provides transparency and individual accountability, encouraging tenants to be more conscious of their utility consumption. However, submetering requires upfront investment in meter installation and ongoing maintenance.

All-Inclusive Lease

In an all-inclusive lease model, the property owner includes the cost of utilities like electricity, gas, and water in the monthly rent. Tenants are not billed separately for their utility usage, simplifying the billing process for both parties.

An all-inclusive lease can attract tenants who prefer predictable monthly payments and have less incentive to conserve utilities. However, property managers must carefully factor in utility costs when setting rent prices to ensure they cover the expenses.

Direct Billing

With direct billing, the utility accounts are transferred directly into the tenants' names, and they receive bills from the utility billing company.

The property owner is not involved in the billing process, and tenants are responsible for paying their utility bills. Direct billing shifts the administrative burden to the tenants but ensures accurate and individualized billing. This also means that if any questions arise, the tenant can contact the utility billing company directly.

However, managing account transfers and ensuring tenants fulfill their payment obligations may require additional effort.

Takeaway

RUBS provides multifamily property owners a method to allocate utility costs among tenants. When deciding whether to use RUBS, landlords should carefully evaluate residents' needs, comply with regulations, and consider alternative approaches.

By making informed decisions, landlords can effectively manage utility costs while maintaining resident satisfaction and financial viability.