The Ratio Utility Billing System Explained
What is RUBS?
The Ratio Utility Billing System, commonly shortened to RUBS, is a utility billing alternative to submetering wherein the total cost of a multifamily or commercial property’s utilities (including water, sewage, electricity, trash collection, waste management and gas) is proportionally divided between each individual tenant based upon a predetermined formula.
How is RUBS calculated?
Instead of alternative methods that involved evenly dividing utility costs among tenants, the RUBS system integrates a few key factors about each unit and/or tenant into a predetermined formula in order to bill each tenant in a more accurate manner in relation to their utility usage. Once the factor or factors that are to be utilized in the formula are set, the tenants are scored and billed accordingly with each factor working as a “multiplier” to the tenants billed amount.
Factors Considered in the RUBS Calculation
RUBS calculations often use one or a combination of these criterion:
- Occupants Per Unit
- Square Footage Per Unit
- Number of Bedrooms and Bathrooms
- Number of Water Fixtures
- A study of the needs and goals for RUBS execution at the property is a good starting point.
- Arrangements should be made with the local utility company regarding the shift in the billing as well as any reimbursement of master payments to be made.
- A notification that includes a start date for the new system should be provided to tenants in a timely fashion.
- Check and recheck the calculations for the new billing system.
- Review trailing 3 months worth of master utility bills and add them to your billing system.
- Ensure that the RUBS generates the correct utility bills in accordance with the ratios decided upon.
- Create and then distribute the first month’s utility bills with instructions for the tenants to send their payments directly to the utility companies
- Receive reimbursement RUBS income checks from the utility company.
- Multifamily Utility Company
- Guardian Water & Power
- Oats Energy
- Vitally Energy
- National Exemption Service (NES)
- Minol USA
What is the Ratio Utility Billing System (RUBS)?
The Ratio Utility Billing System, commonly shortened to RUBS, is a utility billing alternative to submetering wherein the total cost of a Multifamily Loans or Commercial Real Estate utilities (including water, sewage, electricity, trash collection, waste management and gas) is proportionally divided between each individual tenant based upon a predetermined formula.
RUBS, an acronym for Ratio Utility Billing System, is an alternative billing method to sub-metering in an income-producing property. Using RUBS, the total cost of a multifamily or commercial property’s utilities including (but not limited to) water, sewage, electricity, trash collection, waste management and gas are divided proportionally between each individual tenant based upon a predetermined formula.
Due to the rising popularity of the Ratio Utility Billing System, many utility providers have begun offering RUBS billing support. Some popular RUBS providers include:
- Multifamily Utility Company
- Guardian Water & Power
- Oats Energy
- Vitally Energy
- National Exemption Service (NES)
- Minol USA
How does the RUBS system work?
The RUBS system integrates a few key factors about each unit and/or tenant into a predetermined formula in order to bill each tenant more accurately in relation to their utility usage. Alternative methods typically divide the costs up in equal amounts for each tenant, with no considerations towards actual usage, number of tenants per unit, or unit size. Once the factor or factors that are to be utilized in the RUBS formula are set, the tenants are scored, with each factor working as a “multiplier” to the tenants billed amount.
For a property owner looking to transition to the Ratio Utility Billing System, here are a few considerations:
- A study of the needs and goals for RUBS execution at the property is a good starting point.
- Arrangements should be made with the local utility company regarding the shift in the billing as well as any reimbursement of master payments to be made.
- A notification that includes a start date for the new system should be provided to tenants in a timely fashion.
- Check and recheck the calculations for the new billing system.
- Review trailing 3 months worth of master utility bills and add them to your billing system.
- Ensure that the RUBS generates the correct utility bills in accordance with the ratios decided upon.
- Create and then distribute the first month’s utility bills with instructions for the tenants to send their payments directly to the utility companies
- Receive reimbursement RUBS income checks from the utility company.
In order to remove some of the burdens associated with the execution of RUBS, landlords can turn to third party providers to manage the system to further promote transparency and fairness of RUBS.
What are the benefits of using the RUBS system for apartment loans?
The Ratio Utility Billing System (RUBS) is a great way to improve income from apartment buildings. It is a cost-effective alternative to installing metering equipment, and it can be implemented almost immediately. It allows landlords to charge nearly all utility costs back to tenants, including trash, water, gas, and electricity. In addition, since utility usage is tied to costs, residents in RUBS properties actually tend to use less utilities after RUBS was implemented. It is also a transparent and fair billing method that both tenant and landlord can find agreeable. Studies have confirmed a proven correlation between buildings that have separated utility payments from the overall rent and more conservative water usage. In some cases, properties utilizing RUBS saw a decrease of around 27% in water usage. Lastly, RUBS is a much safer bet than the common practice of estimating utility costs and adjusting rents to match, as it typically has a positive impact on the net operating income (NOI) and multifamily cap rates, which increases profitability and value of the investment.
What are the drawbacks of using the RUBS system for apartment loans?
The drawbacks of using the RUBS system for apartment loans include:
- The need to have new tenants sign a lease agreeing to RUBS, which may make it somewhat more difficult to market your units.
- The need to convince current tenants to sign a lease addendum agreeing to RUBS, which they may or may not decide to do.
- Many cities do not allow RUBS, as it’s seen to be somewhat unfair to tenants, especially if the billing amount is purely based on square footage.
- In some cases, there are certain restrictions on how RUBS is implemented.
For more information, contact your state’s public utility commission or your local National Apartment Association affiliate.
What are the best practices for using the RUBS system for apartment loans?
The best practices for using the RUBS system for apartment loans include:
- Conducting a property analysis.
- Issuing lease addendums to current residents.
- Uploading billing and unit information into an integrated system and adding recent master utility bills to the system.
- When enough residents are signed onto RUBS (either new residents or via lease addendum), individual utility bills will be issued to residents.
- Tenants directly pay a utility billing company, which will send a reimbursement check back to the landlord/property owner (or, more likely, the property management company).
- Understanding the impact of implementing RUBS for the property.
- Contacting the local utility company regarding the shift in the billing as well as any reimbursement of master payments to be made.
- Notifying tenants in a timely manner of the start date for the new system.
- Triple-checking calculations for the new billing system.
- Ensuring that the RUBS calculation generates the correct utility bills utilizing the ratios decided upon.
- Sending the first month’s utility bills after implementation with instructions for the tenants to send their payments directly to the utility companies.
- Preparing the property to receive reimbursement checks from the utility company.
- Turning over some of the burdens associated with the execution of RUBS to third party providers who manage the system to further promote transparency and fairness.
For more information, please visit https://www.commercialrealestate.loans/commercial-real-estate-glossary/rubs-income and https://www.hud.loans/hud-loans-blog/rubs-ratio-utility-billing-system.
Some RUBS calculations even take certain “x-factors” such as washing machines, washers, and dryers into consideration for the amount to be billed.
Why is RUBS used?
There are very few ways for multifamily property owners to handle utility costs for their property. Utilities are typically either billed directly to the tenants via submetering, or the entire property is billed as a whole. The former option, also the most fair and accurate option, involves submetering each individual unit, allowing each tenant to be billed directly for their exact utility usage. The latter option leaves the owner to decide the best course of action for tackling the utility cost for the property as a whole.
Submetering is too Expensive or Inaccessible
Submetering, while ideal, is not always a reasonable or even viable option for an apartment property owner, however. For starters, submetering requires specialized plumbing and electrical work to be built into the infrastructure of the property. This alone is enough to keep many of the older properties from being able to submeter their units. In many cases, this can be attributed to simple construction issues that prevent these specialized systems from being able to be installed.
In most cases, it is more a matter of the cost of implementing submetering for an existing property. Reconfiguring existing utility flows in a property is impossible in some cases, and when it's not impossible, it is almost always an incredibly expensive undertaking. Property owners can expect costs of over $400 per unit as an initial investment towards submetering, and that doesn’t include the actual installation.
Rubs has Distinguishable Benefits Compared to Alternative Billing Methods
For every property where submetering isn’t implemented, there is an opportunity to utilize RUBS. RUBS isn’t just a cost effective alternative to submetering, but a transparent and fair billing method that is hard to argue against. Yet there are even more factors worth considering that make the ratio utility billing system an obvious choice compared to other submetering alternatives.
One of the more substantial benefits to using RUBS for utility costs is the environmental impact. There has been a proven link between buildings that have separated utility payments from the overall rent and more conservative water usage. Some studies have even shown that properties utilizing RUBS saw a decrease of around 27% in water usage. As it turns out, tenants tend to be more conservative with utility usage when they are being billed directly for it.
In terms of costs, RUBS is a safer bet than simply estimating utility costs and adjusting rents to match, which typically has a negative impact on the net operating income (NOI) and multifamily cap rates, reducing profitability and devaluing the investment. RUBS is low risk in that there is no monthly out of pocket expense for the landlord, and in many cases the landlord doesn’t even need to make any capital expenditures to implement a RUBS program.
How to implement RUBS
For a property owner looking to transition to the Ratio Utility Billing System, here are a few considerations:
In order to remove some of the burdens associated with the execution of RUBS, landlords can turn to third party providers to manage the system to further promote transparency and fairness of RUBS.
RUBS Providers
Due to the rising popularity of the Ratio Utility Billing System, many utility providers have begun offering RUBS billing support.
Some popular RUBS providers include: