By Salvatore J. Friscia, San Diego Premier Property Management, San Diego, CA
If you own multi-family rental property in the southwestern United States you should know about RUBS (Ratio Utility Billing System). A large majority of multi-family rental properties in California, Arizona, Nevada, and New
Mexico are individually metered for electric but have what’s called a “master” meter for water. The electric usage of the tenant is paid for by the tenant and the water and sewer usage for the entire complex is typically at the owner’s expense. This expense can be rather costly and eats into the NOI (net operating Income) of the property producing a negative effect on the value of the asset. Most industry experts foresee prolonged price increases for water consumption as the areas mentioned above are currently dealing with drought and long-term water conservation concerns. To mitigate this expense savvy investors have typically reduced water consumption by the installation of low flow toilets, low flow shower heads, and landscaping of indigenous plants or desert landscaping in common areas. While this helps reduce cost it doesn’t eliminate it and the owner is still burdened with an expense that continues to outpace reduction methods. Some owners have gone as far as installing sub-metering on each individual unit if the property’s current piping system allows it. This would seem to be the best solution but once again this is only feasible if the properties current piping system will allow you to make these changes. All of these methods are helpful and will curb water consumption and the cost associated with it but unfortunately all of these methods also require an initial capital investment by the owner to implement. Depending on the size of your property, this initial capital expense could be significant — sub-meters can cost anywhere from $200-$400 per unit not including installation fees.
The RUBS (Ratio Utility Billing System) uses an allocation formula that divides a property’s water bill among its residents based on square footage, number of occupants, or some other quantitative measure. It allows the owner to recover a substantial portion of the water and sewer cost by proportionately allocating the costs amongst the tenants. To implement RUBS it is recommended that an owner give monthly notices for at least 6 months to all tenants about the new program. This will give adequate time for the tenants to absorb the changes and understand the new cost associated with the billing. Studies have shown that the loss of tenants will be minimal and the cost associated with the savings from the program will outweigh any short-term vacancy bumps.
The owner then takes a percentage (typically 10% to 20%) from the total water bill for common area usage and allocates the remaining amount to the tenants. Some owners gradually increase the percentage for which tenants are responsible to ease tenants into the program over a yearly time frame. The RUBS program is a useful tool that eliminates the outlay of capital and the high cost associated with sub-metering. When implemented correctly the program will reduce operating expenses and increase the overall value of your property.
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We had a utility charge that was very inadequate–it had not been adjusted in years. We have been doing this four years. The first year, we went half and half of the increase and there was an outrage but lost no tenants. I sympathized with the tenants. I told them it was my fault. I should have increased as prices went up. I apologized repeatedly and told them I would not let this happen again. The next year, we added the additional cost, and there was much complaining, even though we told them the year before. The next two years, there has been no comment. We communicated this at a yearly meal at a local restaruant, rather than telling each tenant (we have 28 units). We decided to put all our begs in one askit. Now they look forward to our meal at Homestead Restaurant.