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Multifamily Utility Considerations for Investors
Learn about the best utility billing methods for multifamily investors, including submetering and RUBS. Also explore other cost-saving strategies.
- What Apartment Investors Should Know About Utilities
- Submetering: Expensive but Highly Effective
- Ratio Utility Billing System (RUBS): A Low-Cost Submetering Alternative
- Utility Benchmarking: Knowledge is Power
- Convergent Billing: An Effective Payment Compliance Method
- Vacant Cost Recovery: A Way to Recover Unpaid Utilities
- Related Questions
- Get Financing
What Apartment Investors Should Know About Utilities
If you're a multifamily investor, don't overlook the potential impact of utilities on your bottom line. In fact, if you're not thinking about utilities, you could be missing out on significant cost savings. Especially if you own an older property without submetering or include utilities in your tenants' rent, you could be leaving money on the table. But there are several ways to save money on utilities, and they don't all involve significant renovation.
This article explores several effective ways you can save money and optimize your utility billing process, thus ultimately improving the financial performance of your multifamily properties.
Submetering: Expensive but Highly Effective
One way to manage the utility expenses in your apartment building is through submetering. Submetering is the practice of monitoring the individual utility usage of each unit. This enables the property owner to accurately charge residents for the utilities they consume.
By holding each resident accountable for their utility usage, submetering encourages more efficient energy use. When residents know they'll be charged based on their individual usage, they're more likely to conserve energy and water. As a result, submetering can lead to a significant reduction in water and energy consumption, which is great for the environment and can also save money in the long run.
However, submetering can be a costly process, and it might not be the best option for everyone. Before making any decisions, it's essential to get quotes from several submeter installation firms in your area. It's also important to consider other factors such as the age of your building, your current multifamily utility infrastructure, and the demographics of your tenants.
In addition, some residents may not appreciate the added cost of submetering, which could lead to dissatisfaction and tenant turnover. On the other hand, many residents may appreciate the fairness and transparency of submetering and view it as a positive change.
Ultimately, the decision to install submeters should be based on your unique circumstances and the needs of your tenants. If you're interested in exploring submetering as an option for your multifamily property, it's always a good idea to consult with an experienced property management professional.
Ratio Utility Billing System (RUBS): A Low-Cost Submetering Alternative
If submetering is too expensive for your apartment building, Ratio Utility Billing System (RUBS) might be a viable alternative. Unlike submetering, RUBS does not require any physical changes or installation of equipment. Instead, it uses standardized formulas to allocate a reasonable fraction of the building's overall utility expenses to each unit, based on factors like unit size, number of bathrooms, and number of residents.
With RUBS, residents can be charged for utilities such as electricity, gas, water, sewer, and trash along with their overall monthly utility bill. In many cases, implementing RUBS does not incur any costs to the building owner, and residents can be charged a small fee in addition to their monthly bill.
According to some sources, RUBS has been shown to result in a 5% to 40% reduction in overall utility use. Additionally, both the National Apartment Association (NAA) and the Environmental Protection Agency have recommended RUBS as an excellent way for apartment owners to encourage residents to conserve water and reduce electricity use.
While RUBS offers a cost-effective way to manage multifamily utility expenses, it's important to consider its potential downsides. Since RUBS does not track individual unit usage, it may not be as accurate as submetering. Additionally, some residents may not appreciate the added cost of RUBS and view it as unfair.
Overall, RUBS is a practical and low-cost option for property owners who want to encourage their tenants to conserve water and reduce electricity usage without investing in submetering.
Utility Benchmarking: Knowledge is Power
Utility benchmarking is a process that allows you to track your building's utility usage and analyze the data. By comparing your building's usage to that of similar properties, you can identify areas where you can reduce utility consumption, saving you money and potentially making your building more eco-friendly.
One of the biggest advantages of utility benchmarking is the ability to catch billing errors and identify equipment malfunctions. These errors and malfunctions can result in unnecessary utility costs and can be difficult to identify without proper tracking.
Additionally, some lenders offer financing programs to incentivize property owners to make energy-efficient upgrades. To qualify for these programs, properties often need to undergo an energy audit and utility benchmarking process. The data collected during the benchmarking process can help you to identify areas where upgrades can be made and show the potential savings from these upgrades, making it easier to get financing for them.
While there are many benefits to utility benchmarking, there are also some potential drawbacks. One is the cost involved in hiring a firm to perform the benchmarking, which can be a barrier for some property owners. Additionally, some owners may be hesitant to share their utility data, even with a reputable benchmarking firm, due to concerns about data privacy.
It's important to note that utility benchmarking is mandatory for some buildings in California, and HUD has proposed making it mandatory for all its multifamily borrowers in the future. This means that if you're in California or plan to borrow from HUD in the future, you may need to participate in utility benchmarking.
Overall, utility benchmarking is a powerful tool for property owners to gain insight into their building's utility usage, identify areas for potential savings and improvement, and potentially qualify for financing for energy-efficient upgrades.
Convergent Billing: An Effective Payment Compliance Method
In many apartment properties, especially older ones, residents may often be faced with multiple, separate bills per month, including bills for rent, water, power, trash, garage fees, pet fees, sewage, and other expenses. This can be confusing and can lead to residents forgetting to pay some of their bills.
Convergent billing offers an effective solution to this problem by placing all of a resident's bills (including rent and all utilities) on one statement. This not only simplifies the payment process for residents, but also makes it much more likely that they will pay all of their utilities on time.
In addition to simplifying payment for residents, convergent billing also provides benefits for apartment property owners. By streamlining the payment process, convergent billing can help reduce the number of delinquent accounts and late fees, ultimately leading to higher revenue and increased profits.
However, it's important to note that convergent billing may not be ideal for all properties. Some residents may prefer to receive separate bills for each expense, and there may be legal and regulatory challenges to implementing convergent billing in certain areas. Therefore, it's important for property owners to carefully consider the pros and cons of convergent billing before implementing it in their properties.
Vacant Cost Recovery: A Way to Recover Unpaid Utilities
Vacant Cost Recovery, or VCR, is a method used to recover unpaid utility bills from residents who have not yet placed their utility accounts in their own names. According to some sources, up to 5% of apartment residents do not pay their utility bills, leaving the apartment building responsible for the costs. With VCR, an analysis of a building’s utility use and billing history is conducted to determine which residents have unpaid utility costs. By charging these residents for their past utility usage, property managers can recover significant amounts of unpaid utility costs.
One of the advantages of VCR is that it can help property managers recover costs that would otherwise be written off. Additionally, it encourages residents to take responsibility for their own utility bills, which can ultimately help reduce the overall cost of utilities for the entire building.
However, there are also some downsides to using VCR. For instance, residents who are suddenly charged for past utility costs may become upset and see it as an unexpected financial burden. Additionally, some may be unwilling to pay these charges, leading to disputes between the property manager and the resident. To minimize these risks, property managers may need to communicate clearly with residents and provide clear, itemized bills with detailed information about the charges.
It is important to note that VCR is not legal in all jurisdictions, and property managers should check their local laws and regulations before attempting to use this method to recover unpaid utility costs.
Related Questions
What are the most important utility considerations for multifamily investors?
The most important utility considerations for multifamily investors are submetering, Ratio Utility Billing Systems (RUBS), utility benchmarking, convergent billing, and vacant cost recovery. Submetering allows investors to bill tenants for their individual utility usage, while RUBS allows investors to bill tenants based on a ratio of their unit size. Utility benchmarking allows investors to analyze and track an apartment’s utility use over a specified period of time, and compare the building to similar properties to discover ways to reduce the property’s utility use. Convergent billing allows investors to combine multiple utility bills into one bill, and vacant cost recovery allows investors to recover utility costs for vacant units.
For more information, please see Multifamily Utility Considerations for Investors.
What are the benefits of investing in multifamily properties with utilities included?
Investing in multifamily properties with utilities included can provide a number of benefits. First, it can help to reduce vacancy rates, as tenants may be more likely to rent a unit that includes utilities. Additionally, it can help to reduce the amount of time and effort required to manage the property, as tenants will be responsible for their own utility bills. Finally, it can help to reduce the amount of paperwork associated with managing the property, as tenants will be responsible for their own utility bills.
In addition to these benefits, multifamily investors may also be able to save money on utilities by using submetering or Ratio Utility Billing Systems (RUBS). Submetering allows landlords to bill tenants for their individual utility usage, while RUBS allows landlords to bill tenants based on a ratio of their unit size to the total number of units in the building. Both of these methods can help to reduce utility costs for landlords, as tenants will be responsible for their own utility bills.
Other ways for multifamily investors to save money on utilities include utility benchmarking, convergent billing and vacant cost recovery. Utility benchmarking allows landlords to compare their utility costs to similar properties in the area, while convergent billing allows landlords to combine multiple utility bills into one bill for tenants. Vacant cost recovery allows landlords to recover some of the utility costs associated with vacant units.
What are the potential drawbacks of investing in multifamily properties with utilities included?
Investing in multifamily properties with utilities included can be a great way to attract tenants and increase cash flow. However, there are some potential drawbacks to consider. For example, if the utility costs increase, the investor may have to absorb the additional costs. Additionally, if the investor is not submetering or using a Ratio Utility Billing System (RUBS), they may not be able to accurately track and bill tenants for their individual utility usage. This could lead to tenants not paying their fair share of the utility costs. Finally, if the investor is not using convergent billing, tenants may be confused by multiple bills and may forget to pay some of them.
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How can multifamily investors ensure they are getting the best utility rates?
Multifamily investors can ensure they are getting the best utility rates by engaging in utility benchmarking. Utility benchmarking is a process of analyzing and tracking an apartment’s utility use over a specified period of time. The resulting data can be utilized to compare the building to similar properties and discover ways to reduce the property’s utility use. Utility benchmarking also has a variety of ancillary benefits, including helping property owners discover billing errors, locate broken equipment, and qualify for green financing programs, such as the Freddie Mac® Green Advantage or Fannie Mae® Green Financing programs.
While utility benchmarking is optional in most parts of the U.S., it is now mandatory for some buildings in California, in particular, buildings larger than 50,000 sq. ft., or those with eighteen or more unit meters. HUD has also proposed requiring multifamily borrowers to engage in utility benchmarking, though these rules have not yet been enacted.
What are the most cost-effective utility solutions for multifamily investors?
The most cost-effective utility solutions for multifamily investors are submetering and Ratio Utility Billing Systems (RUBS). Submetering allows investors to bill tenants for their exact usage of utilities, while RUBS allows investors to bill tenants based on a ratio of their unit size. Additionally, multifamily investors can save money on utilities by utilizing utility benchmarking, convergent billing, and vacant cost recovery. Source
What are the best strategies for managing utility costs in multifamily properties?
The best strategies for managing utility costs in multifamily properties include submetering, Ratio Utility Billing Systems (RUBS), utility benchmarking, convergent billing, and vacant cost recovery.
Submetering is a billing method in which each tenant is responsible for their own utility usage. This allows the property owner to charge tenants for their exact usage, rather than a flat rate.
Ratio Utility Billing Systems (RUBS) is a billing method in which tenants are charged a portion of the total utility bill based on the size of their unit. This allows the property owner to charge tenants for their proportional usage, rather than a flat rate.
Utility benchmarking is a process of comparing a property’s utility usage to similar properties in the area. This allows the property owner to identify areas of potential savings.
Convergent billing is a payment compliance method in which all of a resident’s bills (including rent and all utilities) are placed on one statement. This makes it much more likely that residents will pay all of their utilities on time.
Vacant cost recovery is a billing method in which the property owner is able to recover some of the utility costs associated with vacant units. This allows the property owner to recoup some of the costs associated with vacant units.
- What Apartment Investors Should Know About Utilities
- Submetering: Expensive but Highly Effective
- Ratio Utility Billing System (RUBS): A Low-Cost Submetering Alternative
- Utility Benchmarking: Knowledge is Power
- Convergent Billing: An Effective Payment Compliance Method
- Vacant Cost Recovery: A Way to Recover Unpaid Utilities
- Related Questions
- Get Financing