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Cedar River Properties Newsletter (3/4/23)

This week’s newsletter will describe a strategy many apartment owners and their property management companies use to increase income at an apartment complex.

As I’ve mentioned before, commercial and apartment buildings are valued based on their Net Operating Income, so the more you can increase the income of a property, the higher its value will be.

The strategy I am about to describe is called Ratio Utility Billing System or “RUBS” for short. It is the process of passing utility costs from the owner of the building to the residents, specifically water/sewer charges.

Most residents within an apartment complex understand that they will be charged additional costs on top of rent, so it is normally not a surprise to them and is something they have come to expect.

However, if an older apartment building only has one meter for water and the owner is paying the utility costs, then they are missing out on a great opportunity.

If an apartment building does not have separate meters for water/sewer, then it will be the perfect opportunity for a building to implement RUBS. Most of the time, installing individual meters will be too expensive and won’t be cost effective.

RUBS is a legal and ethical way to pass utility costs along to residents and to boost the income of the property while reducing expenses.

As far as I know, this can be done for water, sewer, electricity, trash and other items that should be charged back to residents.

My experience in property management has seen residents put electricity in their name through the local electric company since their apartment is individually metered, but many times water/sewer will either be paid by the owner or charged using a flat fee.

At the current apartment I help manage, we are just now changing from flat rates for water/sewer to the RUBS system. This was a business decision by management/ownership to collect more income.

According to the lease and specifically the utility addendum, we can change how utilities are billed as long as we provide a written 30 day notice to all residents.

People living alone will not see much of an increase in water billing; whereas, families and roommates will see higher bills since they are technically using more water in their apartment with more people living there.

In the end, this is a business and the apartment is trying to collect as much income as possible to increase the value and the returns to all investors that are a part of the deal.

I hope this was helpful in understanding how utilities are billed for an apartment and how to implement RUBS.

Have a good weekend everybody!