One of the most common factors of multifamily investing that often gets overlooked is utilities. While they may not be the most attractive part of your investment strategy, ignoring them completely could lead to incurring unnecessary expenses, as opposed to added income. In this blog, we’re going to review the different utility billing methods, as well as potential money saving strategies for multifamily investors.
If your apartment building is not currently sub metered, it could be beneficial to consider a submetering system for major utilities such as gas, water and electricity. Sub-metering is the bast way to accurately charge residents for the exact amount of utilities they use, as it tracks each units individual usage. Additionally, since tenants are held accountable for their individual utility usage, it’s a good way to reduce overall energy and water use. It’s important to note that while new technologies have made sub-metering more affordable, it can still be an expensive process. The best way to determine if sub-metering is the right investment for you is to contact local installation firms for quotes and compare cost vs return on investment.
Ratio Utility Billing System (RUBS)
If you find that sub-metering isn’t within your budget, a Ratio Utility Billing System (RUBS) can be a good alternative. Unlike sub-metering, RUBS generally does not require any kind of physical changes or instillations. Instead, RUBS utilizes standardized formulas to allocate each unit a reasonable fraction of the building’s overall utility expenses. Utilities that are charged to residents via RUBS include electricity, gas, water, sewage and trash, and are based on factors such as unit size, number of bathrooms and residents. Similar to submetering, RUBS is an excellent way for multifamily investors to incentivize their tenants to conserve their electricity and water usage.
In the apartment property world, especially older ones, tenants are often faced with multiple separate bills each month. These can include rent, water, electricity, trash, pet fees, sewage, and so on. When tenants face this stack of bills, it can be difficult to keep track of each month, and can often lead to unpaid bills. To mitigate that risk for you and tenants, convergent billing can place all bills on one statement (including rent and all utilities) which makes it much easier for tenants to keep track of. Not only will they be happy with an organized statement, they’re much more likely to remember when and which bills they have to pay.
Utility benchmarking is a process used to track an apartment’s utility use over a specified period of time. This data can be used to compare the building to other properties and uncover ways to reduce the property’s utility usage. Utility benchmarking has other benefits as well, including helping 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. Not only is utility benchmarking a good way for multifamily investors to keep track of their property, it’s an incentive to conserve energy and resources for a more sustainable future.
Vacant Unit Cost Recovery
While this may be hard to believe, on average 3-5% of all apartment residents aren’t actually paying their utility bills. This is typically due to paperwork errors where the tenant didn’t put the utilities in their name, which leaves the apartment building responsible for paying the unit’s utility costs. In the Vacant Cost Recovery process, an investor will analyze the property’s utility use and billing history in order to charge the responsible tenant for their previously unpaid utility usage. For larger buildings, this could lead to thousands of dollars in recovered utility expenses.
If you are investor looking for financing for multifamily properties, RCN Capital has competitive loan options available. Connect with us today to schedule a consultation.