One of the top questions a prospective resident wants to know when they are interested in your property is, “Will I have to put any utilities in my name?”
The answer is largely determined by how your property is metered, and ultimately, how you can recoup those utility expenses from residents. There are several ways a property manager can recoup utility expenses, so let me give you a breakdown of all the scenarios that are possible.
In order to calculate what is owed for each utility, a reading must be obtained from your community’s applicable utility meter. Your property is metered in one of two ways:
Direct metered: This means that there is one meter per utility type, per residential unit. Each meter is read by the utility provider. The utility provider is responsible for calculating those usage charges and billing them directly to your resident. In most cases, the property management company is only responsible for utility charges when the unit is vacant.
Master metered: In master metered communities, there is one meter per utility type, per building. The utility charges for that community are billed directly to the property owner by the utility provider. From there, it is up to the property owner to determine how they wish to recoup those costs. Here’s how that can be done:
- Submeter Reads: In this instance, individual meters for each residential unit are installed behind the master meter. Those meters are monitored by the owners or the submeter vendor rather than the utility provider. The readings obtained from submeters show precisely the utility consumption for each unit. Either the property management company or a third-party billing provider invoices residents for what they owe.
- RUBS: RUBS stands for Ratio Utility Billing System. It is a method of calculating a resident’s utility charges that is proportionately based on the number of occupants per unit, square footage or other factors. Either the property management company or a third-party billing company performs the RUBS calculations and bills the corresponding charges to residents.
- Utilities Included: Some property owners inflate the price of rent to account for monthly utility costs. With this method, property managers must factor in the possibility of rising utility rates, variance of utility usage per season, and local rental rates.
If your community is master metered, you may be wondering which of the above options is best for recouping utility expenses. Our answer: Submeters, if it is structurally and economically feasible for your property. Submeters are a win-win for both the resident and the property owner. Residents benefit because submetering provides them with a precise picture of their utility usage, enabling them to have more control over their future consumption, and if they wish, save money by conserving. Submetering also protects property owners from unbudgeted utility expenses, giving them higher net operating margins. Also, by effectively reducing property expenses, property managers can increase their property value.
When submetering is not a practical option, RUBS is great and fair alternative for calculating utility consumption. The drawback can be the process of making the calculations. This can be complex and time consuming for a property management company, which is why some prefer to outsource this task, along with billing residents, to a third party.
Lastly, there’s including utilities in the price of rent. Most experts recommend avoiding this practice like the plague. For one, you’ll either end up undercharging your residents (meaning you have to pay the difference every month) or overcharging them, which is illegal in some states. Including utilities in the rent also means that your property’s utility bills are going to be much higher than if the residents were paying it themselves. When residents are not the ones held responsible for paying the bill, they tend to consume more. Pair that with having to charge a higher price for rent in an already competitive market, and a “utilities included” model can be quite damaging to a property manager’s bottom line.