Is this the year multifamily operators stop charging back for utilities?
Author: Joseph Gozlan, Eureka Business Group | Published: 01/30/2023
Multifamily properties have unique challenges when it comes to utility billing. In the last 6-8 years, property operators have used a Ratio Utility Billing System (RUBS), where residents are billed for their individual usage of utilities such as electricity, gas, water, and waste management. However, recent trends show that more multifamily operators are opting to go back to the fixed utilities fee system.
A fixed utilities fee is a flat rate charged to residents for their use of utilities. This fee is based on the average consumption of utilities in the property and is charged to residents regardless of their actual usage normally based on the unit size and how many occupants are in the unit.
There are several reasons why multifamily property owners are making the switch from chargebacks to fixed utilities fees.
Simplicity and Convenience: One of the primary advantages of fixed utilities fees is the simplicity and convenience of billing. Unlike chargebacks, which require operators to keep track of the property usage and submit meter readings, fixed utilities fees are a straightforward, predictable cost. This eliminates the hassle of managing and billing for individual utility usage, freeing up operators to focus on other aspects of operations.
Increased Revenue: Another benefit of fixed utilities fees is increased revenue for the property owners. With a RUBS chargeback system, property owners are normally dependent on 3rd party vendors to accurately calculate the usage, which can result in lost revenue if usage is underreported. On the other hand, fixed utilities fees are based on average usage and are not subject to the same inaccuracies. This results in a more consistent and predictable stream of revenue for property owners.
Improved Cash Flow: Fixed utilities fees also improve cash flow for property owners. Unlike RUBS, which can result in uneven payments throughout the month, fixed utilities fees provide a consistent source of income that can be relied upon to meet operating expenses.
Reduced Maintenance Costs: Fixed utilities fees can also help reduce maintenance costs for property owners. In a RUBS system, residents may be reluctant to report higher than normal usage, which can result in maintenance issues going unnoticed. With fixed utilities fees, property owners have a better understanding of the overall consumption of utilities and can proactively address any issues before they become a larger problem.
Compliance: Implementing a RUBS system is complicated because of all the rules and regulations that may (and often do) differ between state, counties and municipalities leading to the fact most multifamily operators choose to hire 3rd party vendors to take on that responsibility.
Enhanced Resident Satisfaction: Finally, fixed utilities fees can enhance resident satisfaction. In a chargeback system, residents may be frustrated by unexpected spikes in their utility bills, or feel that they are paying more than their fair share. Fixed utilities fees provide residents with a predictable cost, which can lead to a more positive living experience.
While fixed utilities fees have many benefits for property owners, there are also some drawbacks to consider. For example, residents who use less utilities than average may feel that they are paying more than their fair share. Additionally, if property owners do not accurately estimate the average consumption of utilities, fixed utilities fees may be too high or too low, which can result in lost revenue or increased costs.
Despite these potential drawbacks, the trend towards fixed utilities fees in the multifamily property industry continues to grow. Property owners who are considering making the switch from RUBS to fixed utilities fees should carefully weigh the benefits and drawbacks and consult with a professional to determine the best option for their specific property and residents.
In conclusion, multifamily property owners are increasingly opting for fixed utilities fees over RUBS and chargebacks for their convenience, increased revenue, improved cash flow, reduced maintenance costs, compliance and enhanced resident satisfaction. While fixed utilities fees may not be the best option for every property and every resident, they provide many benefits that make them an attractive option for many property owners.
Commercial Real Estate Advisor
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