SS259: What is Ratio Utility Billing System (RUBS)

SS259: What is Ratio Utility Billing System (RUBS)

Ratio Utility Billing System, or RUBS, is a method of billing tenants individually for utilities that are not individually metered. In this episode, Charles discusses what RUBS are and how apartment owners utilize this billing system to cover the cost of utilities at their properties without individually metering their tenants.

Watch The Episode Here:

Listen To The Podcast Here:

Talking Points:

  • Over the years, I’ve owned and rented out apartments with and without RUBS; I’ve also lived as a tenant in both. RUBS is a system for distributing the cost of utilities, usually water and sewer, based on a combination of several factors. Since the 1980s/1990s to the present day, most multifamily properties constructed in the United States have been equipped with sub-metered utilities. However, older multifamily properties are less likely to have sub-metered utilities. Every property that I have invested in has always had sub-metered electricity, which I feel is mandatory for 12-month rental properties. If they had gas, it was also sub-metered. But, on older properties, it is very common to include water and sewer in a tenant’s rent. 
  • The idea behind RUBS is to divide the actual cost of utilities between all tenants using a specific, predetermined formula. The formula will include one or more of the following factors, based on each individual tenant’s unit, to determine what each tenant owes.
    • Number of Occupants
    • Square Footage
    • Number of Bedrooms or Bathrooms
  • Typically, I see property managers mainly bill by the number of bathrooms. That is how we have done it when we have had properties with RUBS. Once, when I was a tenant, the property was built in the 1960s, and the property manager had a flat fee RUBS system that was like $45 per month for 1-bathroom units and $55 per month for 2-bathroom units.
  • Property managers have to be careful when calculating RUBS because they need to deduct common areas. In the apartment complex I lived in a decade ago that charged RUBS, there was a pool, a coffee area, and common showers and bathrooms in the pool area. All the water usage for these amenities had to be deducted before the remainder was split among the tenants. There are strict regulations around charging and overcharging tenants for utilities. 
  • I believe that the apartment complex I lived in undercharged for the true cost of RUBS per unit to ensure that there was no chance of overbilling. Instead of splitting the bill exactly and adjusting what every unit owed regularly, they simply charged a flat fee based on the number of bathrooms each unit had. For properties that want to be more exact, they need to spend the time dividing the bill per unit and individually billing each unit. Although it’s not an ideal situation, the property can offset the cost of utilities by utilizing RUBS.
  • What are the Benefits of RUBS?
    • Property owners are able to recover a significant portion of utility expenses.
    • No upfront costs are really the main benefit of RUBS. Unlike with sub-metering, landlords do not need to invest a large amount of money into implementing RUBS.
    • Some property managers might cite conservation as a benefit of RUBS, but let’s be honest, the property owners don’t want to foot the entire utility bill themselves. Is a tenant really going to turn off that faucet sooner if they are splitting the water bill with all of the other tenants at the property? They know they won’t save anything if they do.
  • What are the Disadvantages of RUBS?
    • Lack of Direct Measurement. Tenants do not pay for what they exactly use. This can lead to disputes with tenants.
    • Regulations. Property managers have to be aware of local laws and regulations regarding RUBS before implementing them.
    • It is a rent increase. If you are required to pay the property manager more, it is a rent increase. I have heard many investors over the years simply say that we are implementing RUBS and all tenants will start paying them immediately, as if it were no big thing. It is not that easy or simple. You usually need to wait until a lease renewal or until a new tenant moves in. If a tenant was paying $1,200 a month for rent, and, after RUBS, they are now paying $1,270 a month, that is a 6% rent increase. No matter how you try to explain it to tenants.
  • I don’t like RUBS and try to avoid having them at any properties we are investors in. The last time we had RUBS at a property, we invested funds to sub-meter it, and it was well worth it. Sub-metering has an upfront cost of usually a few hundred dollars per unit, but once installed, a third party handles all billing and service for your tenants. The service charges your tenants the administration fee of a few dollars per month, and their actual water usage. Property managers can now offset all of their tenants’ water costs without having to explain, bill, or collect additional funds from them.
  • Furthermore, water costs increase regularly. If you implement RUBS via a simple flat fee and then water rates increase, you need to consistently adjust the RUBS fee accordingly. If you implement sub-metering, this increase is all handled by the sub-metering service.
  • It is important to note that if you are sub-metering or implementing RUBS, it usually will take some time, as you get tenants on board. Since they are now paying additional for the same services they once received in their rent, implementing RUBS or sub-metering might be difficult if you plan to raise their rent at the same time.
  • Additionally, to learn more about maximizing your rental profits through ancillary fees, check out episode SS257.

Transcript:

Charles:
Welcome to Strategy Saturday. I’m Charles Carillo and today we’re breaking down ratio utility building systems or rubs in why it’s one of the most common ways landlords split utility costs, especially in older multi-family properties. So over the years I’ve owned and rented out apartments with and without rubs. I’ve also lived as a tenant in both. And rubs is a system of distributing the cost of utilities, usually water and sewer based on a combination of several factors. Now since the 1980s and the 1990s to the present day, most multifamily properties constructed here in the United States have been equipped with sub-metered utilities. However, older multi-family properties are less likely to have sub-metered utilities. Every property that I’ve invested into has always had sub-metered electricity, which I feel is mandatory for 12 month rental properties. And if they had gas, it was also sub-metered. But on older properties it’s very common to include the water and sewer and at tenant rent.

Charles:
So the idea behind Robs is to divide the actual cost and utilities between all tenants using a specific predetermined formula. And the formula will include one or more of the following factors based on each individual tenant’s unit to determine what each tenant owes. And this could be number of occupants in the unit, square footage of a unit, number of bedrooms or bathrooms in the unit. Typically, I see property managers mainly billed by the number of bathrooms. That is how we have done it when we had properties with rubs and once when I was a tenant, the property that was built in the 1960s and the property manager had a flat fee rub system that was like $45 per month for one bathroom units and 50 to $5 per month for two bathroom units. And I remember when we leased that apartment, there was just like a sheet, a cover sheet that they gave you with the lease showing what the rubs was.

Charles:
It was just a straight flat rate, it wasn’t an exact measurement. Now property managers have to be careful when they’re calculating rubs because they need to deduct the common areas. So in the apartment complex, I lived in a deck that that charge for rubs. There was a pool, there was a coffee area, like a little cafe thing. There was a common area in bathrooms in the pool area. And all the water usage for these amenities had to be deducted before the remainder was split among the tenants. And there are strict regulations around charging and overcharging tenants for utilities. So you have to be very careful. I would always work through a property manager that’s well versed in your area before instituting rubs or even thinking about ’em. Now I believe that the apartment complex I lived in under charge for the true cost of rubs per unit to ensure that there was no chance of overbilling.

Charles:
Now instead of splitting the bill, exactly adjusting whatever unit owned, you know, regularly, they simply charge a flat fee based on the number of bathrooms each unit had. For properties that wanna be more exact, they need to spend the time dividing the bill per unit and individually billing each unit, although it’s not an ideal situation. But property can offset the cost utilities by utilizing rubs. So what are the benefits of rubs? Well, property owners are able to recover a significant portion of utility expenses. No upfront costs are really the main benefits of rubs. Unlike submetering, landlords do not need to invest a large amount of money into implementing rubs. Some property managers might cite conservation as a benefit of rubs, but let’s be honest, the property owners don’t wanna foot the entire utility bill themselves. Is a tenant really gonna turn off a faucet sooner if they’re splitting that water bill with all the other tenants at the property?

Charles:
They know they’re not gonna save you money if they do, especially if it’s on that flat rate. So what are the disadvantages of rubs? Well, it’s a lack of direct measurement. Okay? Tenants do not pay for what they exactly use. And this can lead to disputes with tenants regulations. Property managers have to be aware of local laws and regulations regarding rubs before implementing them. And it is a rent increase if you’re required to pay the property manager more. It is a rent increase. And I’ve heard many investors over the years simply say that we’re gonna implement rubs and all tenants will be start paying them immediately as if they’re, it is no big thing and it is not that easy or simple. You usually need to wait until a lease renewal or until, until a new tenant moves in. And if a tenant was paying $1,200 a month for rent and after rubs, they’re not paying $1,270 a month for rent.

Charles:
That is a 6% rent increase. You know, no matter how you wanna explain to tenants, they’re paying 6% more. I don’t like rubs personally and I try to avoid having them at properties that we are investors in. And the last time we had rubs at a property, we invested funds to submeter it and it was well worth it. You know, submetering has an upfront cost, usually of a few hundred dollars per unit, but once installed, a third party handles all the billing and service for your tenants. The service charges, your tenants, the administration fee of a few dollars per month and their actual water usage. Property managers can now offset all their tenants water costs without having to explain bill or collect additional funds from them because it’s going through a third party. Furthermore, water costs increase regularly and if you implement rubs via a simple flat fee and then water rates increase, you need to consistently adjust the rubs fees accordingly.

Charles:
If you implement submetering, this increase is all handled by the submetering service. So as a side note, when we had a property, it was in Tampa and it was on rubs, and I remember this a few years back, it was a pretty sizable increase in the cost of water. So that’s when we were saying like, no more rubs, we’re gonna invest the money. And we spent it over like a year plus, you know, we put ’em in right away and we don’t charge for ’em the new submetering. And then as tenants move out or as they renew, we can put in and start activating those that submetering with the third party. And that’s the way we did it because it’s the easiest way of just pushing it off. If any water increases in the future, it’s not us, it’s the water company. It’s this third party.

Charles:
It has nothing to do with your apartments per se, this is just who handles it for you. And it’s important. Note that if you’re submetering or implementing rubs, it usually will take some time as you get tenants on board. Since they’re now paying additional for the same services that they once received, inclusive in their rent implementing rubs or submetering, it might be difficult if you plan to raise their rent at the same time. You know additionally, to learn more about maximizing your rental profits through ancillary fees, you can check out episode SS257. That’s SS257, but I hope you enjoyed. Please remember to rate, review, subscribe, submit comments on potential show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at syndicationsuperstars.com. That is syndicationsuperstars.com. Look forward to two more episodes next week. See you then.

Links Mentioned In The Episode:

  • SS257: Maximizing Multifamily Profits Beyond the Rent Check –

Are You a Fan? Subscribe, Rate, Review & Share – Click Here To Learn How

What question do you always wish I would ask but I never do?

Connect with the Global Investors Show, Charles Carillo and Harborside Partners:

Scroll to top