The Ratio Utility Billing System is a way to bill back utility expenses to tenants for what they use. If your area is like mine, units will have a separately-metered electrical system, but the landlord will pay for water and sewer. Water is the big one. Sometimes there is a boiler system and it’s free gas. When you know something is free, you tend to use a lot more of it. This is bad for the environment and bad for the wallet (of whomever is paying – that’s you).
Making a utility free sounds like a great way to get tenants in. “Free heat!” I lived in a building that had this deal once. Dead of winter and I was walking around in my underwear, it was set so high in there. I abused that deal and your tenants will, too.
Landlords tell themselves they are offering an incentive, but in reality, it’s more laziness than anything else. If the meters aren’t separate, it either costs a bundle to separate them or the municipality won’t allow it. Utility cost increase every year and affect the bottom line of the property. The solution is not “Free water!”, it’s the RUBS.
RUBS can be simple or complicated. At its most basic, the landlord takes all the utility bills and divides them up by percentage. Each unit and common area has a square foot area that is a percentage of the total.
|Utility Bill||$ 1,000.00||Unit 1||760||20%||$ 202.13|
|Unit 2||760||20%||$ 202.13|
|Unit 3||840||22%||$ 223.40|
|Unit 4||900||24%||$ 239.36|
Each month, the landlord will bill back each tenant and the utility problem is solved.
Benefits of RUBS
- Utilities are billed back
- Other expenses such as trash and cable TV service can be added in
Disadvantages of RUBS
- Monthly bookkeeping goes up
- Tenants have to pay a different amount each month
Another option is to bill a smaller portion to each tenant as a surcharge, say, a $30 water fee per month. This way it never changes and the tenants always pay the same every month. The risk with this is if the amount you bill back exceeds what you paid in utilities, you can get in hot water – you are not allowed in most areas to make a profit off reselling utilities.
The bottom line is to check with your local regulators first. If you are paying utilities and you can implement a RUBS, you need to do so right now.