How to increase capacity by 39% in 30 days – 15 and 1/2 things you need to know

Table of Contents

A viable option

  1. Is your multifamily property a help billing candidate?
  2. Will help billing really improve my cash flow?
  3. What are the additional benefits of billing?
  4. Will help billing increase my property value?
  5. What are the differences between submetering, RUBS and fixed rate billing?
  6. What are the relevant rules and regulations?
  7. Does invoicing of tools affect my vacancies?
  8. What is my competition doing?
  9. Can I install a submeter system? Should I?
  10. How to market utility billing to residents
  11. Billing accuracy and timeliness are crucial
  12. Residents support is critical
  13. Improving recovery of available costs
  14. Managing and sharing billing data
  15. Using service providers for billing tools
  16. Bonus: Statistical data analysis used by billing

For the past few years, many apartment owners have been cooking in a virtual economic oven. High unemployment has led to increased apartment positions, downward pressure on rental income, lots of gifts and falling property values. 2010 doesn’t seem to be shaping up to be much better. According to Multifamily Executive Magazine, national unemployment rates foresee that national vacancies will hit 8% and turnover per employee. Unit will fall from $ 928 (Q4, 2008) to $ 829, a $ 99 decrease in one year.

While not the brightest of prospects, some multifamily owners have an opportunity to increase cash flow with almost no upfront investment and without having more vacancies. If this sounds like a crazy person’s rumble, it’s not. Apartment owners who currently pay for water, gas or electrical expenses on their properties can tap into a significant revenue stream, especially if those complexes are located in states like Colorado.

A viable option

For discussion, assume you own a 100-unit complex and pay all water and gas expenses. Estimate your average water meter at $ 3000 per Month and your average gas bill for $ 6,000. If you pass those costs on to tenants by implementing a resident billing program, you can get nearly $ 108,000 a year. Your net operating income (NOI) increases by $ 540,000 after five years! Should you be looking to sell your apartment complex in the future, transitional expenses for residents can pay off significantly in the form of increased capitalization or “cap” rates and property values. Here’s how you do it:

The cap rate is defined as the ratio of the net operating income produced by an asset to its cost of capital. A simple formula is Cap Rate = Annual NOI / Apartment Asset Value.

Assume that your complex has the following features (before auxiliary billing):

  • Value of apartment assets = $ 4,000,000
  • Annual NOI (old) = $ 280,000
  • Cap Rate = Annual NOI / apartment activation value = $ 280,000 / $ 4,000,000
  • = 0.07 or 7%

Now see how the cap rate is affected after launching a utility billing program:

  • Value of apartment assets = $ 4,000,000
  • Annual NOI (new) = $ 280,000 + $ 108,000 = $ 388,000
  • Cap Rate = Annual NOI / apartment assets
  • = $ 388,000 / $ 4,000,000
  • = 0.97 or 9.7%

That’s a cap rate increase of 39%! These are exciting and achievable numbers!

If you are intrigued, read on to the “secrets” you need to know, which will save you lots of frustration, time and effort. This report presents 15 topics and a bonus idea that will help maximize the profitability and efficiency of your billing program.

1. Is your multifamily property a help billing candidate?

If your property is “master-metered” for any of the utilities – water, gas or electricity – and you are currently paying those expenses, you are likely a candidate for a utility billing or “utility cost coverage” program. Auxiliary billing effectively allows you to transfer tool spending to residents. (Note: master-metered complexes have an auxiliary meter that records usage data for multiple occasions.)

The second test is to find out if tool billing is allowed in the city, county, and state where your property is located. The Public Utility Commission is the first place to start. If billing is allowed and your property is master-metered, we recommend getting started.

2. Will help billing really improve my cash flow?

Auxiliary billing will definitely improve your cash flow and do it right away. To determine the extent to which this will increase your savings, you must review master meter bills from the last twelve months. Assume that the total bill for water and gas is $ 7,000 per day. Month.

Estimate the amount you might want to allocate for general area expenses, such as: office and hall leasing, heating, coin-operated gas dryers, landscaping, or a pool. Set the common area allowance (CAD) to 15%. Some states require you to deduct a reasonable CAD from the amount you bill tenants. In other states, however, the entire utility bill, including the portion devoted to common areas, may be charged.

Here’s what you can expect to see from a cash flow perspective:

  • Monthly utility bill = $ 7,000
  • Ordinary area deduction (CAD) = $ 7,000 .15 = $ 1,050
  • Positive monthly cash flow impact = $ 7,000 – $ 1,050 = $ 5,950

This is equivalent to an annual increase in cash flow of $ 71,400. It’s compelling!

3. What are the additional benefits of billing?

Auxiliary billing significantly moves your cost structure for the better. Tenants become financially responsible for the gas, water and electricity they use, and are therefore encouraged to use resources more wisely. When submetering is used to measure individual consumption and to bill residents, it is common to see usage fall by up to 35%. You will be hard pressed to find another investment that will reduce consumption to this extent.

Invoicing also insulates owners from rapidly rising utility prices. If you pay for utilities and prices increase, you hold onto the bag and are unable to raise the rent to cover the higher costs. Tenant billing effectively separates usage costs from the tenancy structure, making your property more appealing and price competitive. While not as significant as the savings created by insertion, it has even been found that a billing ratio billing system (RUBS) reduces consumption by up to 5%.

4. Will invoicing tools increase my property value?

Billing for water, sewer, electricity or gas boosts multifamily property values ​​by improving cash flow and NOI. If you review the example at the beginning of this report, transferring water and gas expenses previously paid by the landlord to tenants resulted in an increase in the ceiling of 2.7 (7.0 to 9.7). This represents a 38% lift. If an owner submits his property to start a billing program, this equipment investment will also significantly increase the value of the property.

5. What is the difference between submetering, RUBS and fixed rate billing?

If you have decided that tool billing may be a practical pursuit for your apartment community, here is a basic explanation of various options. Some of the methods for calculating tenant bills include:

  • submetering
  • Ratio Utility Billing System (RUBS)
  • Fixed rate.

> submetering

Sub-metering involves the installation of a water, electric, gas or heat allocation meter in each tenant’s unit that directly measures usage usage. Meter readings and the monthly usage rates are used to calculate rental bills.

Submeasuring is the most equitable way to bill tenants because they only pay for what they use and are rewarded financially when they save. Submeasuring is not free and requires an initial investment from the property owner. Sub-metering systems range in price from $ 150- $ 400 per unit. Device depending on the tool being measured. If you run a tax-deductible, affordable property at affordable rates, it is necessary to make a sub-deduction to bill tenants to utilities.

> Ratio Utility Billing System (RUBS)

A RUBS or “ratio utility billing system”, although not equal, is very popular because it requires no capital outlay. Tenant invoices can be calculated on the basis of master meter invoices, occupancy of apartments, square meters of apartments, number of beds or a combination of factors.

Many apartments have a pipe configuration that does not support the installation of individual water meters. Some use central heating systems – eg Baseboard radiation, fan units, ovens – which do not allow the installation of individual gas meters. A RUBS billing is an excellent alternative in these cases.

> Fixed price

With fixed billing, you determine a fixed amount to be charged to tenants for electricity, water, gas, trash, internet, cable, etc. Owners may charge different fees to tenants who have more occupants or larger apartment units, but the amount is known and expected. Fixed billing rarely encourages preservation, but allows owners to recover some of their spending. It’s a simple process to begin, but can cost you money if you don’t accurately estimate your annual utility costs.

6. What are the relevant rules and regulations?

The rules and regulations for billing and tool insertion vary depending on the city, county and state where your apartment complex is located. These rules are subject to change and do so on a regular basis.

To cite some examples, the City of San Diego City Council is considering an ordinance requiring new multi-family homes with three or more units to install water sub-meters. Also, existing apartment complexes replacing their water systems would also need to be sub-metered.

The state of Georgia has become the first state to legally require multi-family, commercial and industrial buildings to be approved after July 1, 2010. In addition, the state strongly encourages existing multi-family homes to track and implement sub-meters.

It is common when you implement a utility billing program, for the owner, property manager or billing provider, to include a service fee for calculating, printing, mailing and collecting utility bills. In the state of Texas, this fee must be paid by the owner of the property. However, if the property is filled to water, the billing fee can be transferred to the tenant.

In the state of Colorado, multi-family owners can “RUB” out the entire bill value, including land area expenses. This is acceptable, unless of course you are operating a tax deduction property where RUBS is not allowed at all.

From these examples you can see that the rules for tool billing and submetering vary widely and require some research to know what is and is not allowed. In almost all cases, your lease must be changed to authorize tenant tool billing.

7. Will invoicing of tools affect my available rates?

Will a transition from owner-paid to rent-paid utilities increase unemployment? Specific. Maybe. The truth is that some tenants may be leaving as a result of this change. It has been our experience that the impact is very minimal and rarely results in residents moving out … as long as they are informed of the impending changes.

In the best cases, you start a utility cost recovery program, no one leaves, and your net operating income increases. Let’s look at what happens in the “not-so-best-of-the-cases.”

Your apartment complex has 100 units and the average rent is $ 680. As a result of your new tool billing program, you assume that 3% of your renters (a very high number) leave and it takes six months to complete these vacancies. The lost rental income is:

  • Tenants vacate = 100 3% = 3
  • Lost rental income = 3 x $ 680 x 6 million = $ 12,240

Now compare the lost rental income with the gain from your recovery of cost expenses. assume:

  • Monthly utility cost recovery = $ 3,000
  • Revenue increase = $ 3,000 x 6 million = $ 18,000
  • Lost Rental Income = $ 12,240
  • Net effect on revenue (with 3% vacancy) = $ 18,000 – $ 12,240 = $ 5,760 gain

For this analysis, the percentage of tenants leaving is a “high” estimate, and cost recovery estimates are “low.” These numbers are conservative and not what you would expect to experience most of the time. In addition, new tenants moving in will do so with the understanding that they are responsible for their own utilities.

8. What is my competition doing?

The multi-family industry is very competitive and it is wise to check out competing apartment communities in your immediate area. Note whether complexes nearby include tools in their rental structure or not. If they do, the next question is: Should you be the “maverick” on the block and the first to bill?

In almost all cases, the answer is “yes.” Research shows that rental rates and amenities are a major factor when a tenant decides where to stay compared to whether or not utilities are included.

If competing complexes bill tenants for utilities, they are already reaping the benefits you want for your property. It’s OK to be a little late for the party, just don’t miss it altogether.

9. Can I install a submetering system? Should I?

Most apartment complexes support the installation of a water, gas, heat or electrical submetering system. For example, if each unit in your building has a single water supply line with an individual spacer, or at most one line for hot water and one for cold, the odds are high that you can insert. A plumber is required to install the actual metering unit, but it will capture all the water used in the apartment and can be used for tenant billing.

If, on the other hand, units in your complex have multiple pipes that supply water, install one meter on each line to collect all the water used in an apartment. This is usually cost prohibitive as utility meters range in price from $ 200- $ 400 and installing more of them in each unit would be very expensive. Several water lines are often hidden behind walls and in ceilings that lack easy access. This increases plumbing costs. RUBS is the chosen solution in these cases.

> Accelerated repayment

If your property supports submetering, the next question is, “Should you install a system?” For a 100-unit complex, you can estimate $ 20,000 – $ 40,000 to get the system implemented and ready for billing. Repayment periods range from 12 to 24 months. After this time, the amount of money you generate from tenant tool billing will exceed the cost of your sub-investment. This kind of return on investment (ROI) is hard to beat!

> Conservation benefits

From a conservation standpoint, there is no better way to reduce utility usage than insert. Tenants will use tools more wisely when they are financially responsible for their consumption. Studies and direct experience show that post-insertion use can be reduced by up to 35% and sometimes even more.

Lower utility usage is beneficial for you and for tenants. For example, if you Taking a deduction for common area, say 15%, is based on the total meter meter calculation. If the utility bill on the master meter rejects, you save money.

Submeasuring is also the most fair way to bill, because residents are charged only for the utilities they use. Furthermore, you may discover: with a means of measuring the actual use from an apartment by apartment basis:

  • Water leaks and losses
  • Functional HVAC systems
  • How properties compare from a utility consumption standpoint
  • Insights into user patterns for residents.

The value of pasted data is remarkable and can be used in several ways to improve your property’s energy efficiency and ultimately reduce costs.

10. How to use utility billing for residents

If you are switching from a “tool-included” model to one where tenants are paying, you need to “market” the upcoming changes and how that will impact tenants. The first step is always to have a signed lease that says you need to bill for utilities. If you need a sample as you read the addendum, please contact us.

Many owners start a utility billing program with leasing contracts that do not approve tenant billing. In these cases, it may take a few months for all tenants in the community to be billed. Rent renewals and new tenant removals offer the opportunity to bring everyone on board.

> Rent reduction

To speed up the process, some owners are offering a rent reduction to encourage tenants with an existing lease to sign a lease. It is fairly straightforward to estimate what an average water bill will be. Suppose the cost is $ 45. An owner or manager may be able to offer a rent reduction of half the amount, say $ 23, in return for accepting the new rental terms.

> Tenant Notice

On the other hand, if you have not raised the rent recently and your apartments are underpriced compared to the competition, it is probably not necessary to reduce the rent.

Instead, use your efforts to communicate information that will help residents understand how the billing process will work. Give an advanced notice and try to provide accurate bill estimates so that tenants can prepare. Many owners hold resident meetings to explain the changes, discuss how bills will be calculated, and share tool retention strategies.

Visit our site for a complete list of useful preservation tips.

> Typical concerns for tenants

You can expect tenants to be concerned about the age and efficiency of the appliances, plumbing and water systems, and other equipment that uses equipment installed in your apartment complex. Tenants recognize that inefficient baseboard radiators, leaky faucets, draft windows, etc. will cause their bills to be higher.

Apartment owners can encourage tenant purchases by installing more energy-efficient equipment in the units – e.g. low flow burn heads, taps and toilets – before the invoice program starts.

11. Billing accuracy and timeliness are crucial

Whether you are sending invoices yourself or using a third-party service provider, billing accuracy and timeliness are crucial to a seamless and effective cost recovery program. The easiest way to frustrate residents and incite lots of angry calls is to send bills that are calculated incorrectly or are consistently late.

> Under- and over-billing

If you rent during billing, this reduces your cost savings and you lose money. Overcharging is illegal and can trigger problems with your local and state Public Utility Commission (PUC).

Sent bills also slow down your fundraising efforts and really annoying tenants because the due date is usually the same and now they have less time to pay. Billing works best when it is consistent, repeatable and expected. Create a schedule and stick to it. Establish quality control processes to ensure bills are accurate.

12. Support for residents is critical

Make every effort to provide accurate bills on time, but be aware that problems will arise and that tenants will require assistance. Providing friendly, responsive and professional tenant support is essential to successful billing. To do this, your support staff needs access to billing information, master meter bills, billing formulas, meter reading (for the properties below), tool rates, and an understanding of the rules and laws that govern your country.

> Timely and professional service

If there is an area that consistently causes tenant resentment, it is unable to reach a living person in a reasonable amount of time who can competently answer questions and solve problems. Using a non-responsive third-party utility billing provider will quickly lead residents to call property management staff, take their time and keep them from other revenue-generating tasks.

You probably only hear from tenants if there is a billing issue. With the right tools and training, however, any interaction can be a positive, relationship-creating one.

13. Improving recovery of available costs

Free cost coverage is a long period of time for a simple idea. When a tenant moves out of a unit and notifies the utility company to stop billing, it is routine for the business to provide “continuous service” to the unit. Bills are automatically transferred to the owner. This ensures that the apartment stays heated or cooled, light is available and the freezer does not thaw.

When a new tenant moves in, if she / he does not contact the utility company to update the billing information, the owner pays for that person’s use. Obviously, for owners and managers who operate hundreds of units, this can be an expensive loophole.

Free cost coverage seeks to actively manage this process by comparing updates to the rental roll on a weekly or daily basis with the invoices charged by the owner. When apartments change hands, it is pressed that the owner or manager follows up and confirms that help accounts have been transferred correctly. Establishing penalty fees is a good practice so that tenants are financially incentivized to act quickly.

14. Managing and Sharing Billing Data

With any utility recovery program, you generate and manage lots of data. Owners predominantly use property management systems to record tenant-related information, but many of these applications do not have feature billing capabilities. If your property is underfunded, you are likely to use a third system to capture consumption data.

Information stored or created by one system is often required by another, and there is a continuing need to exchange data. For example, to calculate bills, you need to:

  • Master-meter bills
  • user Data
  • Updated move-in / move-out information.

Once you submit bills, update your property management system with the amounts you have billed residents. When collecting payments, this information must also be recorded. The final step usually involves reconciling bank account, billing and payment information to an accounting system.

Manually entering the same data into multiple applications increases the chance of data entry errors and errors. Furthermore, it is a time-consuming and labor-intensive process. Since most software applications have ways of importing / exporting data, a little programming can go a long way in speeding up the transfer process, saving time and effort.

15. Using billing service providers

Apart from very large complexes, it is more cost effective to use a third party billing company that manages almost every aspect of the help billing process and significantly reduces the owner / manager’s workload. In addition to saving money and freeing up time for employees, billing providers offer other value-added services such as:

  • Web-based invoicing, management and reporting tools
  • Online payment and electronic bill presentation
  • Convergent billing and available cost coverage
  • Data analysis and more.

In states where it is permissible to pass on a nominal service fee to tenants, to read, send bills and / or collect payments, a service provider uses nothing. Other states do not allow a billing fee to be passed and the owner must pay service fees.

Some common issues with tool billing providers are:

  • Late and inaccurate bills
  • Non-responsive management and resident support
  • High fees.

When using a billing provider, we recommend asking about these issues, calling their customer support line, and conducting a thorough conversation. Be sure to discuss benefit guarantees that assess an economic penalty if the provider does not deliver on the terms of the agreement.

Contact us and we will send you a copy of: “Considerations when working with a third-party billing provider.

Bonus: Statistical data analysis used by billing

Submetered properties offer incredible opportunities to reduce power consumption and save energy. There is a wealth of actionable information that can be extracted from usage data if you know how and where to look. Consider the case of a housing complex that has been measured for water. With the right tools, owners can monitor usage patterns and detect water leaks on an almost real-time basis. This can prevent material damage and save tenants unnecessary expenses.

Or consider an apartment complex that has a central heating system connected to baseboard radiators and which is measured using heat allocation equipment. By analyzing how tenants use heat, you can more effectively target your conservation efforts, reduce usage costs, and save owners and residents money.

There are excellent opportunities to further increase the profitability of your multi-family complex by using analytics to reduce costs and prevent waste.