If dealing with utilities for single family homes in Cleveland, Ohio wasn’t complicated enough, the process for multi-family homes is even more intricate.
Now, you may have a multi-family property where the utilities are split. That is, they’re metered separately for each unit within the property. Multi-family properties like that aren’t altogether different from single family properties.
But you run into a completely different situation if the utilities are not split. And, unfortunately, you’re going to run into a lot of Cleveland, Ohio multi-family properties where this is the case.
For whatever reason, when the vast majority of duplexes, quads, triplexes, and even larger multi-family buildings in the Cleveland, Ohio area were built— 50 to 100 years ago— the people who built them didn’t sub-meter the utilities. So the landlord paid everything as one lump sum.
And, obviously, one of the major differences between when these multi-family buildings were made and now is that utilities back then were a lot cheaper. They weren’t the huge expense they’ve become, especially in the last few years.
So now you have landlords with these multi-family buildings that aren’t sub-metered and they’re actively looking for a way to increase profit by shifting the cost of the utilities to their tenants.
When utilities aren’t split you really only have a couple of options to divide the cost.
- The owner pays the utilities. This is probably the easiest option and it’s the cheapest in terms of upfront costs.
- Another option that people are asking about— and we’ve been experimenting with this method here at Realty Trust Services— is called “RUBS.” RUBS stands for Ratio Utility Billing System. And, basically, what RUBS does is it gives the property manager a ratio to use when they divide up the utility bill.
Normally when you use RUBS you divide a water bill among three tenants. It can be divided any number of ways: based on the number of tenants; the square footage of the different units; sometimes owners will even factor in a little bit for a common area and they’ll pay a portion and add that in as well.
The benefit of RUBS is that its quick and easy to set up. It can be complicated if you’re factoring in a lot of different figures, but there are a number of property management software that will compute the RUBS formula.
But, by and large, it’s usually best to use as simple a formula as possible if you’re going to split the total charge between the tenants. Primarily because you want it to be as easy as possible for them to understand why they’re being charged whatever they are and you don’t want to invite an unnecessary hassle on yourself by having to explain a needlessly complex formula.
As you can imagine, the downside to RUBS is that tenants have a tendency to distrust it due to the fact that it’s not based on true usage. So if they get an extra big bill you’re probably going to hear, “I know I didn’t use extra water this month,” “I think it’s a leak and I shouldn’t have to pay for this,” or, “I think that the tenant upstairs had a boyfriend that was staying overnight and using all this water,” or, “It’s [RUBS] not on the lease and it wasn’t calculated properly.”
So there’s a definite downside in the fact that it can seem unfair.
When we’ve done it here at Realty Trust Services, we’ve had a lot of push-back from tenants. And that happens because you’re fighting against two things…
- The fact that a lot of tenants are used to not paying some utilities when they move into a multi-family property;
- The perceived unfairness factor
Personally, I don’t recommend RUBS. It’s something you can do, but you have to be very careful with how you do it.
- The third option is to meter or sub-meter the property manually. Which means going to the utility company and asking them to put more meters in.
Now, depending on the utility company— because the fine details are always different— that may or may not be possible.
If it is possible, it’s probably going to be very expensive. Prohibitively expensive. To the point where you might as well just continue doing whatever you’re currently doing. You may be required to get city permits, special permits, variances… and sometimes it’s just not possible. There are properties where it’s just not allowed to put a new meter in.
Sub-metering is much less expensive. Sub-meters are put in after the main meter that links back to the utility supply. You can sub-meter for electricity, water, and gas, but— more often than not— you just do it for the water because that’s the one that tends to become a big issue when meters aren’t split.
You can usually get a water meter for $90-$100. So, if you have a triplex, you’re going to be out around $300.
You need a licensed plumber to install a sub-meter because there’s usually more to it than just cutting out a piece of pipe and dropping a meter in. There’s some rerouting that has to be done and you may have to bring the main line down closer to where the water line is to make it split accurately. So there’s some extra plumbing work there in some cases, but oftentimes the actual metering itself can be pretty inexpensive.
There are also options where you can get online readings. To get access to these you can add a module to the meters and that makes the readings available through a WiFi system. And this helps a great deal with the fact that, when you’re sub-metering, you have to split the bill based off of the readings. The proper way to accurately gauge each tenant’s utility charge is to apply the ratios of the different usages on the sub-meters to the main bill. Online readings help you get that much closer to accurate.
One thing that we’re experimenting with here at Realty Trust Services is a billing method where, when the water bill comes in, we split it equally between the tenants and then whichever tenant wants to will take a picture of all the meters, mail it to us, and we’ll issue credits based on the ratio. We write that agreement into the lease and then everything is fair and equal and you also know if there’s any unusual water usage. It allows you to quickly ferret out issues with leaks or what have you.
We’re also experimenting with free cellular WiFi that’s put into the meters. You just pay for the unit and, if you go over a certain amount in a month, you’re notified immediately. Another upside is that it doesn’t use that much data, either.
So there are a number of ways you can work with our clients— and we work with ours here at Realty Trust Services— to split utilities and make your properties very profitable.
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