Multifamily Owners: Including Utilities Can Kill Your Profits – Learn How to Protect Your NOI

If your multifamily complex includes utility fees in the rental fee, brace yourself. Increases in tool costs come your way that can erode your hard-earned profits. Even more worrying is that you are responsible for a significant expense over which you have little or no control. The “utilities included” model puts you in a reasonable way with tenants, their usage trends, and utilities. “Utilities included” also means that you need to be an accurate budgeting man to make sure your rental rates cover annual room expenses. Miss the mark and you have to pay.

The exciting news is that you can quickly and easily change this situation by separating tools from rent and billing tenants directly – at no cost to you. By doing this, you will have a positive and immediate impact on your net operating income (NOI) and the value of your property. From a pricing perspective, your complex will be more appealing to prospective tenants and you have effectively removed yourself from the supply equation completely. Residential billing no longer means worrying about the impact of using tenants, and that leads to greater profits.

The sooner you get started, the better, especially considering the path to usage rates. They seem to only be moving in one direction … up! Water prices for multifamily owners in Houston have risen by 30% this year alone. In New York City, water rates have risen by nearly 13%, and in Milwaukee they are projected to rise 27%. In Jacksonville, supply rates will rise 9%. Owners who are unable to adjust the rent quickly enough to cover the increased costs will hit their income directly.

Tenant abuse is another reason why tenants and property managers need to look closely at the resident’s billing. You have probably rented to the tenant who kicks his thermostat up to “high” during the winter and then opens a window so he can have fresh air. Or you have rented to the tenant who lets the air conditioner get up all day so she can come home to a cool house in the evening.

These are clear examples of expensive and wasteful ways to use heating and cooling. However, the tenant does not bear the cost of this increased consumption. What’s also problematic is that tenants reckon they can use tools in any way they find acceptable because “tools are included.” In their minds, they are already paying for these expenses.

Another inherent flaw in the “included utilities” model is that it provides no financial incentive for tenants to notify property management when maintenance issues arise. Water leaks are a perfect example. A broken toilet flap can spill hundreds of gallons of water in no time. The owner relies on the tenant to inform the maintenance team when a problem like this occurs. However, renters do not pay directly for the water bill, so there is less incentive for them to respond quickly … if at all.

Are you an expert budgeter?

If you include tools for your multifamily complex, you are already familiar with the never-ending budget game. To make sure you cover utility costs, you need to answer accurately questions such as:

  • What percentage will supply rates increase this year?
  • Where should I set my rentals to make sure I don’t lose money?
  • How much water, gas and electricity do residents use?
  • How can I cover utility costs and still keep my rentals competitive?

Some owners choose to set their rent so high that whatever pays utility costs. However, this can adversely affect your occupancy rate by placing your complex at the top end of the price curve and making it less attractive to potential tenants. The flip side is that if you set your rents too low, you risk losing money.

Nervous about change?

Some property managers and owners have initial concerns about separating tools from the rent and billing tenants directly. They are worried that tenants will leave or that it will make their apartments less appealing than their competitors, which includes utilities. It is worth considering, then, how a prospective tenant can assess two different occasions – one with utilities included and one with a resident program billing program.

Suppose you offer a two-bedroom apartment for $ 750 per month (resident-paid utilities) and another down-the-street complex offering a two-bedroom unit for $ 800 per month (utilities included) Your complex will naturally be more appealing from a rental perspective, and everything else that is similar will see more traffic. However, your property is also more advantageous from an overall housing cost perspective. Here’s why.

When residents are billed for utilities directly, whether through a Ratio Utility Billing System (RUBS) or through utility metrics, they can impact their own monthly housing costs. If they save utilities, their bills will be lower. And if residents quickly report maintenance issues and minimize wastage of use, everyone’s utility projects will decline.

The economic impact of converting to tenant-paid utilities

An analysis of the financial benefits of billing tenants for utilities is worthwhile. Suppose you have a complex of 150 units and the monthly water bill is $ 6,300. If you can transfer 80% of this bill back to tenants, you will realize:

  • Monthly Savings: 80% x $ 6,300 = $ 5,040
  • Annual savings: 12 mos. x $ 5,040 = $ 60,480

What do you need to invest to achieve these savings? Nothing more than your time. And if you use a third-party billing provider, the time requirement is next to nothing.

It’s easier than you think

The exciting news for owners is that you can quickly and easily separate tools from the rent and bill tenants directly for water, gas and / or electricity. You can even include garbage, cable, internet, rent or other recurring fees on the bill to make payment easier for renters.

The two most commonly used methods for billing multifamily utility are:

  1. Rubs billings
  2. Submitted invoices

RUBS or the “Ratio Utility Billing System” is a method of distributing utility costs to tenants based on number of occupants, apartment size or other factor. Submitted invoices require the installation of an auxiliary measurement system for direct measurement of the tenants’ use. This usage data is used to calculate resident bills.

RUBS is a great way to start

The fastest, cheapest way to shift tool spending back to residents is to implement a RUBS. Here are the steps:

# 1 – Billing Rules for Research Programs in Your State, County, and City

While most states approach the billing of resident works in a similar way, a few states have unique rules. For example, in Colorado, as long as an owner has a signed lease stating that residents can be billed for utilities, the full amount of the master-metered bill can be redistributed. The owner does not have to take a common area deduction of any kind.

In Texas, however, you not only need a lease signed by the tenant that allows tool billing, the Texas Commission for Environmental Quality (TECQ) specifies how bills should be calculated and what deduction owners should take.

Either investigate the regulatory laws where your complex is located, or trust your third-party billing provider to perform this task. If you are conducting your own investigation, your local or state apartment office is a useful place to start.

# 2 – Have residents sign a new lease or lease addendum

Each resident must sign a lease with an agreement that the owner / property manager can bill for utilities. The rental allowance must at least include: how bills are calculated when payments are due, any common area deduction (CAD). At the end of this article, a copy of supplementary agreements from TCEQ is listed.

# 3 – Set up the billing process

For example, to begin resident water billing, Send information about information, number of coatings for each household and copies of the water meters on the master meter. Every month, you review updated move-in / move-out data to make sure you’re billing the right tenants.

Use the information (above) to calculate rental bills. Create a billing plan. E.g:

  • Billing Period – 5th to 5. You want these dates to coincide with the Master Meter Billing Period.
  • Delivery Date – Bills will be sent on 10th.
  • Due Date – Bills Due on 25th.
  • Last advance notice date letters will be sent on 30th.

# 4 – Notify tenants

We recommend notifying tenants in advance to submit the first bill and clearly describe how the process is managed. Be sure to include accurate contact information and describe how the bills are calculated. Some property managers host local issues and issues to provide a forum for residents to ask questions and encourage a smooth transition.

# 5 – Send the first utility bills

When you send the first bills, make sure that support for the residents is available. We recommend offering different payment options so that tenants can pay by mail, phone or online through the Internet. Clearly defines what payments are due and where these payments are to be delivered.

# 6 – Process payments and manage overdue accounts

Processing payments, maintaining collections and generating administration reports is a laborious and time-consuming process. An accounting system or billing application will be useful for tracking your financial transactions. Be aware to notify tenants when they are due, as this will improve the collections.

conclusion

There is a real opportunity for owners and property managers, who currently include tools in their rental, to improve their profits. By separating utility costs and billing tenants directly, owners can increase the value of their properties, isolate themselves from rising utility prices, and take advantage of tenants. Third-party billing providers can help you get started quickly, competently manage the process on your behalf, and allow your employees to focus on other important tasks.

To download a PDF copy of this article, click here.

Appendix # 1 – TCEQ sample rental supplement for allocation of water / wastewater costs

1. Appendix. This is a supplement to the TAA lease for Apt. No. ___________________ in _____________________________________ The apartments in _________________________________, Texas.

2. Reason for allocation. When water and wastewater bills are paid 100 percent by the owner of the property, residents have no incentive to save on the water. This results in a waste of our state’s natural resources and increases property overhead – and that usually means higher rents. Assigning water bills saves residents money because it encourages them to conserve water and wastewater. We as owners also have an incentive to preserve because by law we have to pay part of the total water bill (s) for the entire apartment.

3. Your payment deadline. Payment of your allotted water / wastewater bill is due 16 days after the date it is postmarked or delivered to your apartment. You agree to mail or deliver payment to the place specified on your bill so payment will be received by the due date. You will pay a late payment of 5 percent of your water / wastewater bill if we do not receive timely payment. If you are late in paying the water bill, we may not cut off your water; but we can immediately pursue all other legal remedies, including deferral – like late payment of rent.

4. Assignment Procedures. Your monthly rent under the TAA lease does not include a water and wastewater fee. We can include this item as a separate and separate tax as part of a multi-item bill. Instead, you receive a separate bill from us each month for such tools. We will allocate the monthly master meter water / wastewater bill to the condominium community, based on an allocation method approved by the Texas Commission on Environmental Quality (TCEQ) and described below. The allocation method that we will use to calculate your bill is listed below and described in the following subsection of Section 291.124 (e) (2) (A) of the TCEQ Rules (check only one):

  • subdivision (i) actual occupancy;
  • subdivision (ii) occupancy rate (TCEQ average for number of occupants of the unit);
  • subdivision (iii) average occupancy (TCEQ ave. for number of bedrooms in unit);
  • subdivision (iv) combination of occupancy and square meter in the apartment; or
  • subdivision (v) underfilled hot / cold water, relative to total.

The normal date when the utility company sends its monthly bill to us for water / wastewater meter is around ______ the day of the month. Within 10 days thereafter, we will attempt to distribute this master meter bill among our residents with assigned invoices.

5. Deduction for common area. We calculate your assigned share of the calculated water / wastewater calculation according to the TCEQ rules. Before calculating your portion of the bill, we deduct for irrigation of landscaping and all other common uses as required by the TCEQ rules. We also deduct all basic fees for utility companies and customer service fees so that you do not pay any portion of such fees for available units. No management fees or other fees will be added to the total master meter water / wastewater bill to be allocated unless expressly permitted by the TCEQ rules. No other amounts are included in the bill except your unpaid balance and any late fees you incur. If we do not pay our master meter bill to the utilities on time and incur penalties or interest, no part of such amounts will be included in your bill.

6. Change of allocation formula. The above allocation formula for determining your share of the water volume / wastewater calculation can not be changed except as follows:

(1) the new formula is one approved by TCEQ;

(2) you receive notice of the new formula at least 35 days before it takes effect; and

(3) you accept the change to a signed lease renewal or signed mutual agreement.

7. Previous average. As required by TCEQ rules, you will be notified that the average monthly invoice for all housing units in the previous calendar year was $ _______ per month. Unit that ranges from $ _______ to $ _______ for the lowest to highest monthly bills of any unit in the apartment for this period, if such information is available. The above amounts do not reflect future changes in the utility company’s water rates, weather variations, overall water consumption, residents’ water consumption habits, etc.

8. Right to examine records. In ordinary office hours of everyday life, you can research:

(1) our water / wastewater bills from the utility company;

(2) our calculations of your monthly allocations; and

(3) any other information available to you under TCEQ rules. Give us a reasonable advance notice to collect the data. Any disputes regarding the calculation of your bill will be between you and us.

9. TCEQ. Invoicing of water distribution is regulated by TCEQ, which has published a summary of the rules (called a camp guide). A copy of this summary or a copy of the rules is attached. This supplement complies with these rules.

10. Conservation efforts. We agree to do our best to repair any water leaks inside or outside your apartment within 7 days of learning them. You agree to use your best efforts to conserve water and notify us of leaks.