RUBS Income in Commercial Real Estate

What is RUBS Income?

In many older multifamily properties, units are not individually metered for utilities, so owners/landlords use RUBS (Ratio Utility Billing System), a method of determining a resident's utility bill based on factors like unit square footage, the number of people living in a unit, or some combination thereof. RUBS can be an excellent way for landlords to reduce costs without directly increasing rent prices.

The Benefits of RUBS for Multifamily Property Owners

In many multifamily properties, it may be unreasonably expensive to install metering equipment, especially if the units are designed with elements that make this especially challenging. For example, if apartments have multiple pipes bringing in water, it would be extremely expensive for a landlord to install meters on each of them. By using RUBS to charge tenants, a landlord does not have to invest any capital, and, in general, the system can be implemented almost immediately. For landlords who use it, RUBS often decreases expenses, increasing NOI and profitability. In theory, RUBS allows landlords to charge nearly all utility costs back to tenants, including trash, water, gas, and electricity. In addition, since utility usage is tied to costs, residents in RUBS properties actually tend to use less utilities after RUBS was implemented.

The Drawbacks of RUBS for Multifamily Property Owners

While RUBS can be a great way to improve income from apartment buildings, its not without its limitations. First, you’ll need to have your new tenants sign a lease agreeing to RUBS, which may make it somewhat more difficult to market your units. You’ll also need to convince current tenants to sign a lease addendum agreeing to RUBS, which they may or may not decide to do.

In addition, many cities do not allow RUBS, as it’s seen to be somewhat unfair to tenants, especially if the billing amount is purely based on square footage. For instance, if a tenant with a 1,500 sq. ft.. apartment rarely uses heat or AC and keeps the lights off, they may use significantly less power than their neighbor with a 1,000 sq. ft. apartment, but they would be required to pay 50% more based on the size of their unit.

Even when municipalities permit RUBS, there are often certain restrictions on how it is implemented. To determine if RUBS is permitted in your area, contact your state’s public utility commission or your local National Apartment Association affiliate.

How Implementing RUBS Billing Works

In order to successfully implement RUBS in your multifamily property, you’ll need to take a few steps, including:

  1. Conducting a property analysis.

  2. Issuing lease addendums to current residents.

  3. Uploading billing and unit information into an integrated system and adding recent master utility bills to the system.

  4. When enough residents are signed onto RUBS (either new residents or via lease addendum), individual utility bills will be issued to residents.

  5. Tenants directly pay a utility billing company, which will send a reimbursement check back to the landlord/property owner (or, more likely, the property management company).

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