RUBS Income: Increasing Profits With A Ratio Utility Billing System

The bill for utilities can run extremely high if you’re a multifamily investor. Not only do the bills often surpass the rent paid by residents, but they also eat into your profits. There are property owners who charge an additional rental for monthly utility bills, especially in older properties that don’t have individual meters. But the fact remains that even then, the utility bill frequently exceeds the total rental income. In such a scenario, the ratio utility billing system can come in handy.  

Whether you’re a landlord aiming to cut costs or a new investor hoping to make more money, understanding RUBS can make a big difference. It’s a tool that encourages fairness in utility expenses, helps the environment, and can boost your profits. But it’s not always simple to put into practice. Let’s further understand what RUBS utility income is, how it operates, its benefits, challenges, and important rules you should know about. 

What Is RUBS? 

RUBS (Ratio Utility Billing System), also known as RUBS income is an alternative way to calculate monthly utility bills. Using RUBS, the total cost of a multifamily utility bill including electricity, gas, water, garbage collection, sewage, and waste management is divided proportionally among individual residents. This calculation method takes into consideration factors such as: 

• The size of the rental unit 
• Occupants per unit 
• Number of water fixtures – for example bathrooms, sinks etc. 
• The number of appliances such as washing machines, dishwashers, etc. 

Note that there is no single formula for calculating RUBS. Each specific utility has its own unique formula. For example, electrical utility usage will reflect the number and type of light fixtures in a particular unit. Similarly, gas utility usage will reflect things such as gas stoves and gas fireplaces. 

Advantages Of RUBS Income 

There are several advantages to implementing a ratio utility billing system. These are: 

1. Improved Revenues

Since the system allows you as a property owner to receive reimbursement from residents for the utility expenses, you no longer have to pay from your own pocket and incur losses.    

2. Reduced Capital Costs

Since you have decided to follow the RUBS calculation method, you won’t have to take on the additional costs of getting submeters installed. In fact, there is no capital expenditure involved to initiate and implement RUBS. Due to this, it is a popular alternative to submetering. 

3. Forced Appreciation

 In real estate, ‘forced appreciation’ is a term used when a property owner causes a property’s appreciation through induced actions. During the RUBS system, an owner benefits from forced appreciation equal to the cost savings divided by the cap ratio. 

4. Environment Friendly

 It has been observed that the usage of utilities drops when residents have to contribute towards the bills. This leads to the conservation of natural resources. 

Disadvantages Of RUBS Utilities Income 

There are a few cons to RUBS too. These include: 

1. Resistance From Existing Residents

 Initially, your existing residents may object to RUBS; they will, after all, have to start paying for their own utility usage. It might cost you a resident or two. 

2. Noncompliance

Some residents might outright refuse to pay. In such scenarios, you would have to decide between eviction and submetering. 

3. Competition

Your existing and prospective residents might prefer submetering over the ratio utility billing system. In such cases, they would not give preference to your property and instead choose properties that have meters installed.    

How To Implement RUBS? 

There are a few things that need to be taken care of before transitioning to RUBS. These are: 

1. Understand Local Laws and Regulations 

Before you decide to use RUBS, it’s important to know the rules in your area. Different places have their different laws about RUBS, so you need to ensure you are following them. 

2. Develop a Fair Allocation Formula 

Next, you will need to create a fair and sensible way to split utility expenses among tenants. This might involve considering things like the size of each unit, how many people live there, or a mix of different factors. The exact approach will depend on what is allowed by local regulations and what is appropriate for your property. 

3. Update Lease Agreements 

Make sure your lease agreements include simple language that explains RUBS and how utility costs will be shared. It is crucial for tenants to understand this system before they sign the lease. 

4. Notify Existing Tenants 

If you are thinking of using RUBS for your current tenants, you will have to give them clear notice and might need to adjust their leases. The rules for doing this can differ, so it is important to understand the local laws. 

5. Implement Billing 

Decide how you will work out and charge each tenant for their part of the utilities. You can do the calculation yourself or hire a company to help. Also, choose how often you’ll send bills to tenants. 

6. Handle Disputes 

Make sure you have a clear plan for dealing with any arguments about utility bills. This could involve checking the tenant’s bill, explaining how the costs are split, and changing things if needed. 

7. Review and Adjust 

Check the system often to make sure it is fair and working well. You might have to make changes now and then, especially if utility prices or how many people live there changes. 

RUBS Meaning for Real Estate 

RUBS real estate means sharing utility bills fairly among apartments that don’t have individual meters. Submeters measure each unit’s utility usage over time. Installing submeters depends on how the plumbing and electrical systems are set up. 

It is easy to put submeters in new apartments because you can plan for them from the start. However, adding them to existing apartments can be expensive and sometimes not possible, depending on how the apartments were built. 

Using RUBS lets you split utility bills fairly among your tenants. 

Also, here are essential questions that every landlord should consider before implementing the RUBS income formula: 

1. What is the square footage of each unit? 
2. How many water fixtures are there in each unit? 
3. How many bedrooms and bathrooms are in each unit? 
4. How many occupants reside in each unit? 
5. Are there any appliances, such as HVAC systems, gas stoves, or dryers, in the units? 

Example of a RUBS Allocation Formula 

Here’s how a basic RUBS allocation might work using the number of people living in each unit: 

Imagine you have a building with 5 apartments. Here’s how they are occupied: 

Apartment 1: 2 people  

Apartment 2: 1 person  

Apartment 3: 3 people 

 Apartment 4: 2 people  

Apartment 5: 2 people 

That’s a total of 10 people in the building. 

Let’s say the utility bill for the whole building for a month is $1000. To find out how much each person should pay, you divide the total cost by the number of people: $1000 / 10 people = $100 per person. 

Then, you multiply that amount by the number of people in each apartment to figure out their utility bill: 

Apartment 1: $100 × 2 people = $200  

Apartment 2: $100 × 1 person = $100  

Apartment 3: $100 × 3 people = $300  

Apartment 4: $100 × 2 people = $200  

Apartment 5: $100 × 2 people = $200 

So, each apartment’s utility bill depends on how many people live there. 

This is a simple example. RUBS calculations can be more complicated and might consider other factors based on the property and local rules. 

How Could a Ratio Utility Billing System Increase NOI? 

The Ratio Utility Billing System (RUBS) has the potential to boost Net Operating Income (NOI) by transferring some or all the utility expenses from the property owner to the tenants. Here’s how it operates: 

Lower Operating Costs: In a typical rental property setup without RUBS, utility expenses often make up a significant portion of the operating costs, which are covered by the property owner. With RUBS in place, these expenses are passed on to the tenants, thereby decreasing the overall operating costs for the property owner. 

Additional Revenue: By implementing RUBS, property owners can charge tenants for their portion of the utilities. This cost recovery serves as an additional source of income (known as RUBS income), which contributes to the property’s total revenue. 

Therefore, when implemented and managed effectively, RUBS has the potential to boost NOI by managing operating costs and introducing an additional revenue stream. 

Key Takeaways 

1. RUBS stands for a monthly utility bill calculation system that considers factors like the unit’s square footage, number of bathrooms, and residents. 
2. The primary objective of RUBS income is to fairly distribute the utility bill expenses among tenants. Each utility, such as water, electricity, and gas, has its specific formula for equitable distribution. 
3. Instead of using RUBS, some multifamily property landlords prefer the flat fee approach. Here, tenants pay an additional amount on top of their monthly rent to cover utilities. 

Choose the Right Property Management Experts for All Your Properties 

Beach Front Property Management stands out from other property management companies as we offer RUBS for both big and small properties. While other companies only offer RUBS for larger properties, we strive to help all of our clients increase their profits by implementing this cost-effective utility billing system. For more information, check out our RUBS resources page.