| Table of Contents | | | | so with the understanding that they are responsible |
| A Profitable Opportunity | | | | for their own utilities. |
| | | | 8. What's my competition doing? |
| 1. Is your multifamily property a candidate for utility | | | | The multifamily industry is very competitive and |
| billing? | | | | checking out competing apartment communities in |
| 2. Will utility billing really improve my cash flow? | | | | your immediate area is wise. Observe whether or not |
| 3. What are additional benefits of utility billing? | | | | nearby complexes include utilities in their rent |
| 4. Will utility billing increase my property value? | | | | structure. If they do, the next question is: Should you |
| 5. What are the differences between submetering, | | | | be the "maverick" on the block and the first to bill? |
| RUBS, and flat rate billing? | | | | In almost all cases, the answer is "yes." Research |
| 6. What are the relevant rules and regulations? | | | | shows that rental cost and amenities are a bigger |
| 7. Will utility billing impact my vacancy rates? | | | | factor when a renter is deciding on where she/he is |
| 8. What's my competition doing? | | | | going to live compared with whether or not utilities |
| 9. Can I install a submetering system? Should I? | | | | are included. |
| 10. How to market utility billing to residents | | | | If competing complexes bill tenants for utilities, |
| 11. Billing accuracy and timeliness are crucial | | | | they're already reaping the rewards you want for |
| 12. Resident support is critical | | | | your property. It's ok to be a little late to the party, |
| 13. Improving vacant cost recovery | | | | just don't miss it altogether. |
| 14. Managing and sharing billing data | | | | 9. Can I install a submetering system? Should I? |
| 15. Using utility billing service providers | | | | Most apartment complexes support the installation of |
| 16. Bonus: Statistical data analysis applied to utility | | | | a water, gas, heat, or electric submetering system. |
| billing | | | | For example, if each unit in your building has a single |
| For the past couple of years, many apartment | | | | water supply line with an individual shutoff valve, or |
| owners have been cooking in a virtual financial oven. | | | | at most one line for hot water and one for cold, |
| High unemployment rates have led to increased | | | | odds are high that you can submeter. A plumber is |
| apartment vacancies, downward pressure on rent | | | | required to install the actual metering device, but it |
| revenues, lots of giveaways, and decreasing | | | | will capture all water used in the apartment and can |
| property values. 2010 doesn't seem to be shaping up | | | | be used for tenant billing purposes. |
| to be much better. National vacancy rates, according | | | | If on the other hand, units in your complex have |
| to Multifamily Executive Magazine predicts that | | | | multiple pipes supplying water, you would need to |
| national vacancy rates will hit 8% and revenue per | | | | install a meter on every line to capture all the water |
| unit will fall from $928 (Q4, 2008) to $829, a $99 | | | | used in an apartment. This is usually cost prohibitive |
| drop in one year. | | | | since utility meters range in price from $200 - $400 |
| While not the brightest of outlooks, some multifamily | | | | and installing several of them in each unit would be |
| owners have an opportunity to increase cash flow | | | | very expensive. Multiple water lines are often hidden |
| immediately with nearly no upfront investment and | | | | behind walls and in ceilings, lacking easy access. This |
| without incurring more vacancies. If this sounds like | | | | increases plumbing costs. RUBS is the solution of |
| the rumblings of a crazy person, it's not. Apartment | | | | choice in these instances. |
| owners who currently pay for water, gas, or electric | | | | > Accelerated Payback |
| expenses at their properties, can tap a substantial | | | | If your property supports submetering, the next |
| revenue stream, especially if those complexes are | | | | question is: "Should you install a system?" For a 100 |
| located in states like Colorado. | | | | unit complex, you can estimate $20,000 - $40,000 to |
| A Profitable Opportunity | | | | get the system implemented and ready for billing. |
| For discussion, assume you own a 100 unit complex | | | | Payback periods range from 12 - 24 months. After |
| and you're paying all the water and gas expenses. | | | | this time, the amount of money you are generating |
| Estimate your average master-meter water bill to be | | | | from tenant utility billing will exceed the cost of your |
| $3,000 per month and your average gas bill to be | | | | submetering investment. This kind of return on |
| $6,000. If you transition these costs to tenants by | | | | investment (ROI) is hard to beat! |
| implementing a resident utility billing program, you can | | | | > Conservation Benefits |
| recoup nearly $108,000 per year. Your net operating | | | | From a conservation standpoint, there is no better |
| income (NOI) increases by $540,000 after five years! | | | | way to reduce utility consumption than to submeter. |
| Should you be looking to sell your apartment complex | | | | Tenants will use utilities more wisely when they are |
| in the future, transitioning utility expenses to | | | | financially accountable for their consumption. Research |
| residents can payoff considerably in the form of | | | | and direct experience shows that after submetering, |
| increased capitalization or "cap" rates and property | | | | usage can be reduced by as much as 35% and |
| values. Here's how: | | | | sometimes even more. |
| Cap rate is defined as the ratio between the net | | | | Lower utility consumption is beneficial to you and to |
| operating income produced by an asset and its capital | | | | tenants. For instance, if you take a common area |
| cost. A simple formula is Cap Rate = Annual NOI / | | | | deduction, say 15%, it is based on the total |
| Apartment Asset Value. | | | | master-meter bill. If master-meter utility bill declines, |
| Assume your complex has the following | | | | you save money. |
| characteristics (before utility billing): | | | | Submetering is also the most fair way to bill because |
| - Apartment Asset Value = $4,000,000 | | | | residents are only charged for the utilities they use. |
| - Annual NOI (old) = $280,000 | | | | Moreover, with a means to measure actual usage on |
| - Cap Rate = Annual NOI / Apartment Asset Value = | | | | an apartment-by-apartment basis, you can discover: |
| $280,000 / $4,000,000 | | | | - Water leaks and losses |
| - =.07 or 7% | | | | - Malfunctioning HVAC systems |
| Now look how the cap rate is affected after you've | | | | - How properties compare from a utility consumption |
| initiated a utility billing program: | | | | standpoint |
| - Apartment Asset Value = $4,000,000 | | | | - Insights about resident usage patterns. |
| - Annual NOI (new) = $280,000 + $108,000 = | | | | The value of submetered data is notable and can be |
| $388,000 | | | | used in numerous ways to improve the energy |
| - Cap Rate = Annual NOI / Apartment Asset Value | | | | efficiency of your property, ultimately reducing costs. |
| - = $388,000 / $4,000,000 | | | | 10. How to market utility billing to residents |
| - =.097 or 9.7% | | | | If you are transitioning from a "utilities-included" model |
| That's a cap rate increase of 39%! These are | | | | to one where tenants pay, you'll want to "market" |
| exciting and achievable numbers! | | | | the upcoming changes and how it will impact tenants. |
| If you're intrigued, read on for the "secrets" you | | | | The first step is always to have a signed lease that |
| should know that will save you lots of frustration, | | | | states you will be billing for utilities. If you need a |
| time, and effort. This report presents 15 topics and a | | | | sample lease addendum, contact us. |
| bonus idea, that will help maximize the profitability and | | | | Many owners start a utility billing program with leases |
| effectiveness of your utility billing program. | | | | in place that don't authorize tenant utility billing. In |
| 1. Is your multifamily property a candidate for utility | | | | these cases, it can take a few months until all |
| billing? | | | | tenants in the community are being billed. Lease |
| If your property is "master-metered" for any of the | | | | renewals and new tenant move-ins afford the |
| utilities--water, gas, or electricity--and you currently | | | | chance to bring everybody aboard. |
| pay these expenses, you're probably a candidate for | | | | > Rent Reduction |
| a utility billing or "utility cost recovery" program. Utility | | | | To accelerate the process, some owners offer a |
| billing effectively enables you to transition utility | | | | rent reduction to encourage tenants with an existing |
| expenses to residents. (Note: master-metered | | | | lease to sign a lease addendum. It's fairly |
| complexes have one utility meter recording usage | | | | straightforward to estimate what an average water |
| data for multiple apartments.) | | | | bill is going to be. Assume the cost is $45. An owner |
| The second test is to find out if utility billing is allowed | | | | or manager might offer a rent reduction of half the |
| in the city, county, and state where your property is | | | | amount, say $23, in exchange for agreeing to the |
| located. The Public Utility Commission is the first place | | | | new lease terms. |
| to start. If billing is allowed and your property is | | | | > Tenant Notification |
| master-metered, we recommend getting started. | | | | On the other hand, if you have not raised rents |
| 2. Will utility billing really improve my cash flow? | | | | recently and your apartments are underpriced |
| Utility billing will absolutely improve cash flow and do | | | | compared to the competition, reducing rents is |
| so right away. To determine the extent that it will | | | | probably not necessary. |
| increase your savings, review master-meter bills from | | | | Instead, spend your efforts communicating |
| the last twelve months. Assume the total bill for | | | | information that will help residents understand how |
| water and gas is $7,000 per month. | | | | the billing process is going to operate. Give advanced |
| Estimate the amount you might allocate for common | | | | notice and try to provide accurate bill estimates so |
| area utility expenses such as: leasing office and | | | | tenants can prepare. Many owners hold resident |
| hallway heating, coin-operated gas dryers, landscape | | | | meetings to explain the changes, discuss how bills will |
| irrigation or a pool. Set the common area deduction | | | | be calculated, and share utility conservation |
| (CAD) amount at 15%. Some states require you to | | | | strategies. |
| subtract a reasonable CAD from the amount you bill | | | | For a complete list of useful conservation tips, visit |
| tenants. In other states, however, it's allowable to | | | | our website. |
| charge back the entire utility bill including the portion | | | | > Typical Tenant Concerns |
| allotted to common areas. | | | | You can expect tenants to be concerned with the |
| Here's what you can expect to see from a cash flow | | | | age and efficiency of the appliances, HVAC and |
| perspective: | | | | water systems, and other utility-using equipment |
| - Monthly utility bill = $7,000 | | | | installed in your apartment complex. Tenants |
| - Common area deduction (CAD) = $7,000 *.15 = | | | | recognize that inefficient baseboard radiators, leaky |
| $1,050 | | | | faucets, drafty windows, etc., will cause their bills to |
| - Positive monthly cash flow impact = $7,000 - | | | | be higher. |
| $1,050 = $5,950 | | | | Apartment owners can encourage tenant buy-in by |
| This equates to a yearly cash flow increase of | | | | installing more energy efficient equipment in the |
| $71,400. That's compelling! | | | | units--e.g. low-flow showerheads, faucets, and |
| 3. What are additional benefits of utility billing? | | | | toilets--prior to initiating the billing program. |
| Utility billing substantially shifts your cost structure for | | | | 11. Billing accuracy and timeliness are crucial |
| the better. Tenants become financially responsible for | | | | Whether you send utility bills out yourself or use a |
| the gas, water, and electricity they are using and are | | | | third party service provider, billing accuracy and |
| therefore incented to use resources more wisely. In | | | | timeliness are critical to a smooth and effective cost |
| fact, when submetering is used to measure individual | | | | recovery program. The easiest way to frustrate |
| consumption and to bill residents, it's common to see | | | | residents and spur lots of angry calls is to send out |
| usage fall by as much as 35%. You'll be hard pressed | | | | bills that have been calculated incorrectly or are |
| to find another investment that will lower utility | | | | consistently late. |
| consumption by that extent. | | | | > Under- and Over-Billing |
| Billing also insulates owners from rapidly rising utility | | | | If you under-bill tenants, this reduces your cost |
| prices. If you're paying for utilities, and prices spike, | | | | recovery and you lose money. Over-billing is illegal and |
| you're stuck holding the bag, unable to increase rents | | | | can trigger problems with your local and state Public |
| to cover the higher costs. Tenant billing effectively | | | | Utility Commission (PUC). |
| separates utility costs from the rent structure making | | | | Late bills also slow down your collection efforts and |
| your property more appealing and price competitive. | | | | really irk tenants because usually, the due date has |
| Although not as significant as the conservation | | | | remained the same and now they have less time to |
| savings created by submetering, even a ratio utility | | | | pay. Billing works best when it's consistent, |
| billing system (RUBS) has been shown to decrease | | | | repeatable, and expected. Create a schedule and |
| consumption by as much as 5%. | | | | stick to it. Establish quality control processes to |
| 4. Will utility billing increase my property value? | | | | ensure bills are accurate. |
| Billing for water, sewer, electricity or gas increases | | | | 12. Resident support is critical |
| multifamily property values by improving cash flow | | | | Make every effort to deliver on-time, accurate bills |
| and NOI. If you review the example at the beginning | | | | but be aware that problems will occur and tenants |
| of this report, transitioning the water and gas | | | | will call for assistance. Providing friendly, responsive, |
| expenses previously paid by the owner, to tenants | | | | professional tenant support is critical to a successful |
| resulted in a cap rate increase of 2.7 (7.0 to 9.7). This | | | | utility billing operation. To do so, your support staff |
| represents a 38% lift. If an owner submeters his/her | | | | will need access to billing information, master-meter |
| property in order to start a billing program, this | | | | bills, billing formulas, meter readings (for submetered |
| equipment investment will substantially add to the | | | | properties), utility rates, and an understanding of the |
| value of the property too. | | | | regulations and laws that govern your locale. |
| 5. What are the differences between submetering, | | | | > Timely & Professional Service |
| RUBS, and flat rate billing? | | | | If there is one area that consistently causes tenant |
| If you've decided utility billing might be a practical | | | | resentment, it's not being able to reach a live person, |
| pursuit for your apartment community, here is a basic | | | | in a reasonable amount of time, who can |
| explanation of different options. Some of the | | | | competently answer questions and fix problems. |
| methods to calculate tenant utility bills include: | | | | Using a third party utility billing provider that is |
| - Submetering | | | | unresponsive will quickly lead to residents calling |
| - Ratio Utility Billing System (RUBS) | | | | property management staff, taking up their time, and |
| - Flat rate. | | | | keeping them from other revenue-generating tasks. |
| > Submetering | | | | You'll likely only hear from tenants if there's a billing |
| Submetering involves installing a water, electric, gas, | | | | issue. With the right tools and training, however, |
| or heat allocation meter in each tenant's unit that will | | | | every interaction can be a positive, |
| directly measure utility consumption. Meter readings | | | | relationship-building one. |
| and the monthly utility rates are used to calculate | | | | 13. Improving vacant cost recovery |
| tenant bills. | | | | Vacant cost recovery is a long-winded term for a |
| Submetering is the most equitable way to bill tenants | | | | simple idea. When a tenant moves-out of a unit and |
| because they only pay for what they use and they | | | | notifies the utility company to stop billing, it's routine |
| are rewarded financially when they conserve. | | | | that the company will provide "continuous service" to |
| Submetering is not free and does require an initial | | | | the unit. Bills automatically roll over to the owner. This |
| investment by the property owner. Submetering | | | | ensures that the apartment remains heated or |
| systems range in price from $150 - $400 per unit | | | | cooled, lights are available, and the freezer doesn't |
| depending on the utility being metered. If you | | | | thaw. |
| operate a tax credit, affordable housing property, | | | | When a new tenant moves in, if she/he does not |
| submetering is required to bill tenants for utilities. | | | | contact the utility company to update the billing |
| > Ratio Utility Billing System (RUBS) | | | | information, the owner pays for that person's usage. |
| A RUBS or "ratio utility billing system", while not as | | | | It's clear that for owners and managers operating |
| equitable, is very popular because it requires no | | | | hundreds of units, this can be an expensive loophole. |
| capital outlay. Tenant utility bills can be calculated | | | | Vacant cost recovery seeks to actively manage this |
| based on the master-meter utility bills, apartment | | | | process by comparing updates to the rent roll on a |
| occupancy, apartment square footage, number of | | | | weekly or daily basis, to the bills being charged the |
| beds, or some combination of factors. | | | | owner. When apartments change hands, it's pressing |
| Many apartments have a piping configuration that | | | | that the owner or manager follow up and confirm |
| doesn't support installing individual water meters. | | | | the utility accounts have been transferred properly. |
| Some use central heating systems--e.g., baseboard | | | | It's a best practice to establish penalty fees so that |
| radiation, fan coil units, furnaces--that don't allow | | | | tenants are financially incented to act promptly. |
| individual gas meters to be installed. A RUBS billing is | | | | 14. Managing and sharing billing data |
| an excellent alternative in these cases. | | | | With any utility cost recovery program, you'll be |
| > Flat Rate | | | | generating and managing lots of data. Owners |
| With flat rate billing, you decide on a fixed amount to | | | | predominantly use property management systems to |
| bill tenants for electricity, water, gas, trash, Internet, | | | | record tenant related information but many of these |
| cable, etc. Owners may charge different fees to | | | | applications don't have utility billing capabilities. If |
| tenants who have more occupants or larger | | | | you're property is submetered, it's likely you'll use a |
| apartment units but the amount is known and | | | | third system to capture consumption data. |
| expected. Flat rate billing rarely encourages | | | | Information stored or created by one system is |
| conservation but does allow owners to recover some | | | | often required by another and there's a continuing |
| of their utility costs. It's a simple process to initiate | | | | need to exchange data. For example, in order to |
| but can cost you money if you don't estimate your | | | | calculate bills, you'll need: |
| yearly utility expenses accurately. | | | | - Master-meter bills |
| 6. What are the relevant rules and regulations? | | | | - Usage data |
| The rules and regulations covering utility billing and | | | | - Updated move-in/move-out information. |
| submetering vary based on the city, county, and | | | | After you send bills, you'll want to update your |
| state where your apartment complex is located. | | | | property management system with the amounts |
| These rules are subject to change and do so | | | | you've billed residents. As you collect payments, this |
| periodically. | | | | information needs to be recorded also. The final step |
| To cite some examples, in the City of San Diego, the | | | | usually involves reconciling bank account, billing, and |
| City Council is considering an ordinance requiring new | | | | payment information into an accounting system. |
| multifamily residential developments, with three or | | | | If you have to manually input the same data into |
| more units, to install water submeters. Also, existing | | | | multiple applications, the chance for data entry errors |
| apartment complexes replacing their water systems | | | | and mistakes increase. Furthermore, it's a time and |
| would also be required to submeter. | | | | labor intensive process. Since most software |
| The State of Georgia has become the first state to | | | | applications have ways to import/export data, a little |
| require by law the submetering of multifamily, | | | | programming can go a long way in speeding up the |
| commercial, and industrial buildings that are permitted | | | | transfer process saving you time and effort. |
| after July 1, 2010. Moreover, the State is strongly | | | | 15. Using utility billing service providers |
| encouraging existing multifamily residences to follow | | | | Except for very large complexes, it's more cost |
| suit and implement submeters. | | | | effective to use a third party billing company that will |
| It's common when implementing a utility billing | | | | manage almost all aspects of the utility billing process |
| program, for the owner, property manager, or billing | | | | and substantially reduce owner/manager workload. In |
| provider to include a service fee for calculating, | | | | addition to saving money and freeing up staff |
| printing, mailing, and collecting utility bills. In the State | | | | member time, billing providers offer other value |
| of Texas, this fee must be paid by the property | | | | added services such as: |
| owner. If, however, the property is submetered for | | | | - Web-based utility billing, management, and reporting |
| water, the billing fee can be passed through to the | | | | - Online pay and electronic bill presentment |
| tenant. | | | | - Convergent billing and vacant cost recovery |
| In the State of Colorado, multifamily owners can | | | | - Data analysis and more. |
| "RUB" out the entire utility bill including common area | | | | In states where it's allowable to pass a nominal |
| utility expenses. This is acceptable unless, of course, | | | | service fee through to tenants, to read, send bills, |
| you operate a tax credit property whereby RUBS is | | | | and/or collect payments, using a service provider |
| not allowed at all. | | | | costs the owner nothing. Other states do not allow a |
| You can see from these examples that the rules for | | | | billing charge to be passed through and the owner |
| utility billing and submetering vary widely and require | | | | must pay the service fees. |
| some research to know what is and isn't allowed. In | | | | Some common problems regarding utility billing |
| almost every case, your lease will need to be | | | | providers are: |
| amended to authorize tenant utility billing. | | | | - Late and inaccurate bills |
| 7. Will utility billing impact my vacancy rates? | | | | - Unresponsive management and resident support |
| Will transitioning owner-paid to tenant-paid utilities | | | | - High fees. |
| raise vacancy rates? Definitely. Maybe. The truth is | | | | When using a billing provider, we recommend asking |
| that some tenants may leave as a result of this | | | | about these issues, calling their customer support line, |
| change. It's been our experience that the impact is | | | | and conducting a thorough interview. Be sure to |
| very minimal and rarely results in residents moving | | | | discuss performance guarantees that assess a |
| out...as long as they are informed of the impending | | | | financial penalty if the provider doesn't deliver on the |
| changes. | | | | terms of the agreement. |
| In the best of cases, you start a utility cost | | | | Contact us and we'll send you a copy of: |
| recovery program, nobody leaves, and your net | | | | "Considerations When Working With a Third Party |
| operating income soars. Let's look at what happens in | | | | Utility Billing Provider." |
| the "not-so-best-of-cases." | | | | Bonus: Statistical data analysis applied to utility billing |
| Your apartment complex has 100 units and average | | | | Submetered properties offer incredible opportunities |
| rent is $680. As a result of your new utility billing | | | | to reduce utility consumption and save energy. There |
| program, assume 3% of your renters (a very high | | | | is a wealth of actionable information that can be |
| number) leave and it takes six months to fill those | | | | mined from usage data if you know how and where |
| vacancies. The lost rent revenue is: | | | | to look. Consider the case of a residential complex |
| - Tenants vacating = 100 * 3% = 3 | | | | metered for water. With the right tools, owners can |
| - Lost rent revenue = 3 x $680 x 6 mos. = $12,240 | | | | monitor usage patterns and detect water leaks on a |
| Now compare the lost rent revenue to the gain from | | | | near real-time basis. This can prevent property |
| your utility cost recovery. Assume: | | | | damage and save tenants unnecessary expense. |
| - Monthly utility cost recovery = $3,000 | | | | Or consider an apartment complex that has a central |
| - Revenue increase = $3,000 x 6 mos. = $18,000 | | | | heating system connected to baseboard radiators, |
| - Lost rent revenue = $12,240 | | | | and is metered using heat allocation equipment. By |
| - Net effect on revenue (with 3% vacancy) = | | | | analyzing how tenants use heat, you can more |
| $18,000 - $12,240 = $5,760 gain | | | | precisely target your conservation efforts, reduce |
| For this analysis, the percentage of tenants who | | | | utility costs, and save owners and residents money. |
| leave is a "high" estimate and the cost recovery | | | | There are excellent opportunities to further increase |
| estimate is "low." These figures are conservative and | | | | the profitability of your multifamily complex by using |
| not what you'd expect to experience the majority of | | | | analytics to reduce costs and prevent waste. |
| the time. Moreover, new tenants who move in will do | | | | To download a PDF copy of this report, click here. |