RUBS: Ratio Utility Billing System
RUBS, or a 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 are divided proportionally between each individual tenant.
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What Is RUBS?
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.
How Is RUBS Calculated?
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.
Factors Considered in RUBS Calculations
The criteria for RUBS calculations typically include one or a combination of any of these factors:
Square Footage Per Unit
Occupants Per Unit
Number of Bedrooms and Bathrooms
Number of Water Fixtures
In some cases, there are even certain “x-factors” such as washing machines, washers, and dryers that can get factored into the consideration for the amount to be billed.
Why Is RUBS used?
Utility costs can be hard to account for with any commercial property. Due to the nature of utilities, there are actually very few ways to handle utility costs efficiently. In general, these costs are typically either billed directly to the tenants via sub-metering, or the entire property is billed as a whole.
Sub-metering, the most fair and accurate option, involves each unit getting metered and billed individually. While this completely removes the burden from the landlord or property owner, it is also the most costly method to implement for buildings without preexisting sub-meter infrastructure.
The latter option, and the most common for older properties, leaves the burden of deciding the best course of action for tackling the utility costs for the property as a whole up to the owner.
Although sub-metering is arguably the best billing option, it isn’t always a reasonable or even viable option for property owners. Sub-metering can be inaccessible because it requires specialized plumbing and electrical work to be built into the infrastructure of the property. This alone prevents many older properties from being able to sub-meter their units. Often times, this can be attributed to simple construction issues that prevent the installation of these specialized systems.
Sometimes, it is more a matter of the costs associated with implementing sub-metering for an existing property. Reconfiguring existing utility flows is simply impossible for some properties, and in the event that it isn’t impossible, it is more than likely an incredibly expensive undertaking. Expected costs can reach over $400 per unit just as an initial investment towards sub-metering, and that doesn’t even factor in the actual installation.
Rubs vs. Alternative Billing Methods
For any property without sub-metering, RUBS is an incredibly viable option for billing. It isn’t just a cost-effective alternative, but a transparent and fair billing method that both tenant and landlord can find agreeable.
One of the more substantial benefits to utilizing the ratio utility billing system is the environmental impact. 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. Understandably, tenants tend to be more conservative with utility usage when they responsible for the bill.
In regards to accounting, RUBS is a much safer bet than the common practice of estimating utility costs and adjusting rents to match. This outdated method typically has a negative impact on the net operating income (NOI) and multifamily cap rates, which reduces profitability and devalues the investment. The utilization of RUBS is low risk — there is no monthly out of pocket expense for the landlord, and implementing RUBS typically takes little to no capital expenditure .
Implementing RUBS at Your Property
Before transitioning to the Ratio Utility Billing System, there are a few things that must be done:
Understanding the impact of implementing RUBS for the property is a good starting point.
The local utility company should be contacted regarding the shift in the billing as well as any reimbursement of master payments to be made.
Tenants should be notified in a timely manner of the start date for the new system.
Calculations for the new billing system should be triple-checked.
Ensure that the RUBS calculation generates the correct utility bills utilizing the ratios decided upon.
The first month’s utility bills after implementation should be sent with instructions for the tenants to send their payments directly to the utility companies.
The property should be prepared to receive reimbursement checks from the utility company.
Some of the burdens associated with the execution of RUBS can be turned over to third party providers who manage the system to further promote transparency and fairness.
There are many utility providers that have begun offering RUBS billing support due to the rising popularity of the billing method.
Popular RUBS providers include:
Multifamily Utility Company
Guardian Water & Power
National Exemption Service (NES)