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My Experiment with RUBS Water Metering for my Multi-Family Properties

by Tom Sylvester on April 14, 2014 · 46 comments

  

One of my biggest frustrations when it comes to multi-family investing (at least in my area) is the fact that the water bill must be in the name of the property owner.

From what I understand, this came about because it was easy for tenants to skip out on their water bill. The local municipality cannot turn the water off, so there is very little incentive for the tenant to actually pay the water bill, so several years ago they decided to force the property owner to pay the bill.

The Problems with Water Bills

I have been both a tenant and a landlord (as I would imagine most landlords have).  When I was a tenant, I had 2 different situations.  In one, my utilities were not included.  In the other, they were included.

Utilities Not Included

The house that I rented during college did not have utilities included.  It was a single family home and I had 4 roommates.  As a result, a few things happened.

  • We received a high utility bill during one winter.  Given that we were poor college students, we decided as a house that we would drop our thermostat and instead wear an extra layer in the house.
  • We also made sure to call in our meter readings so that we would be paying an accurate amount.
  • We had to pay our final bill.  If we didn’t, the utility company was going to come after us for it.

Utilities Included

After college, my wife (then girlfriend) moved to Rochester and rented an 8-plex.  This was an old building with a boiler heating system.  Because the building was initially a single family home that was later split into a multi-family, the utilities had not been split.  So the landlord paid all utilities and there was a single thermostat for the heating.  As a result, a few things happened.

  • We no longer thought about or cared about the utility bill.  We paid our rent and that was it.
  • We left windows open in winter.  With the way our building was split, some rooms had too much heat.   Because there was only 1 thermostat, the only way to cool these rooms was to leave the windows open.

I imagine I am not alone with this way of thinking.  The problem is that without having the responsibility of paying for a utility, the tenants will not be mindful of how much they are using.  What this means for every investor is the more of a utility used, the less cashflow that unit will bring in.

The Experiment

There had to be a better way.  In episode 60 of the BiggerPockets Podcast Serge Shukhat explain how he hired a company to sub-meter his multi-family properties.  After the main water meter (which Serge gets billed for), this company installed a water sub-meter for each unit.  The main water bill goes to Serge, but then he collects payment from the sub-metering company that bills each tenant for their usage.  Genius!

So I began looking around my area, and an unfortunate side effect of investing in rural area is that a company to sub-meter the property did not exist.  So I have decided to create one.  Here is my proposed plan.

  1. Establish a new company using a DBA (Doing Business As)
  2. Install 2 sub-meters on one of my multi-family properties.  This will be our latest rehab so we already have all the water lines split with this idea in mind.
  3. Our real estate business will continue to pay the water bill.  Our new DBA will send the tenants a monthly bill for their water use.
  4. Our DBA will pay our real estate business for the water used.

Your Thoughts

Any time I have a new idea, I love to run it by others to hear the pros and cons.  Have you use sub-meters on your property?  Are there any major holes that my new strategy is missing?

I’d love to hear your thoughts below.

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{ 46 comments… read them below or add one }

Brandon Turner April 14, 2014 at 10:58 am

Tom … I just want to say,

I think you are a genius.

I also was stopped by the fact that there are no submetering companies out in my rural area. So I shut my brain down and haven’t done any work on the RUBS idea. But your idea to create your own… is sheer brilliance.

I owe you buddy. I’m off to go research where to buy sub-meters!

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Tom Sylvester April 14, 2014 at 4:03 pm

Brandon – Genius or stubborn, not sure which one it is.

I picked up test meters from esubmeter. Let me know if you end up trying out as I’d like to share experiences. Maybe I’ll do another post in a few months with an update.

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Serge S. April 14, 2014 at 11:10 am

Tom – great post. Thank you for the reference to the podcast … A few words of advice from my 2 years of submettering:

First and foremost find out if you are allowed to shut off the water for non payment. If you cannot shut the water off then you will be chasing tenants and incurring bad debt. Once tenants know that you will not shut off water then it becomes a vicious cycle.

IF you cannot shut off water then I would recommend taking your yearly bill, dividing by 12 then dividing by number of units and charging this as a monthly utility surcharge in your lease. This way you have enforcement without the submetter costs.

Finally – don’t forget to also access and bill for the trash and sewer. In some cases this is as much as water. Less variable and very easy to add to the top. Make sure you don’t have an overload of competition that pays for these utilities as your tenants may run.

Hope that helps.

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Tom Sylvester April 14, 2014 at 4:12 pm

Serge – Thanks for jumping in and I really appreciate the knowledge sharing from actual experience.

Great idea on the lease surcharge. So in the scenario where one cannot shut off the water, you are recommend just adding water as a standard charge to the lease and not installing submeters? My only concern in that case would be that it does not protect the landlord from a high water bill. We had a tenant that had a toilet constantly running, but did not let us know, and 3 months later when we received the bill it was $800+. Prior to this idea, we were thinking of modifying our lease to state that water was included to a certain amount and the tenant was responsible for anything above that amount.

In our area, garbage is included in our property taxes. Most landlords do pay water in our area, but we have developed a quality brand and top notch apartments, so I’m hoping that will set us apart, but only time will tell.

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Serge S. April 14, 2014 at 4:28 pm

Yes – if you cannot shut off water than I would use the lease surcharge method. Use your actual water expense for an entire year and that should pick up the overages. At the end of the day it needs to be reasonable $30-$50 maximum.

Where I do this, I advertise the stated lease rate which does not include utilities, washer dryer rental, etc. If your rental is desirable then the tenant will accept. If your marketing junk then not so much.

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Ben Leybovich April 15, 2014 at 6:45 pm

Guys – I like paying water! In the Symphony 10-plex the H2) is individually metered. Tenants can choose to put the bill in their name, but many choose to add $20 to their rent and have me keep it in my name. And for me, this works well. Why – because I am immediately aware of the increased usage (running toilet, busted water heater tank, leak of some sort, etc.). The minute I see a higher bill than normal, I know to send my guys to check things out before we have issues with water damage. Thus, a surcharge is the way to go in my opinion – you might have to pay something from time to time, but by and large it works well with no headaches…

James April 14, 2014 at 11:12 am

“The problem is that without having the responsibility of paying for a utility…”

Actually, it sounds like the problem was actually:

“With the way our building was split, some rooms had too much heat.”

If the HVAC system is not designed correctly, that is the real problem the landlord needs to address.

Regarding your DBA: Does it actually earn any money? Is the DBA charging a % markup on the water it resells, or a flat fee or not chargeing at all? Who pays- the landlord ot the tenet? Just curious!

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Tom Sylvester April 14, 2014 at 4:16 pm

James – I agree with you on the issue above. The landlord really should have fixed the design issue with the HVAC. Because he didn’t, he was paying for it with high utility bills.

The plan is the DBA will charge for 2 things: monthly meter rent and meter reading charge. This will be outsourced to someone to go around monthly and read the meters and send the bills. Tenant pays that. I believe this is how Serge discussed the company in his area does it.

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Geoff Van Dusen April 14, 2014 at 11:12 am

I love this idea, wanting to hear others ideas.

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Tom Sylvester April 14, 2014 at 4:17 pm

Thanks Geoff. Me too!

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Karen Margrave April 14, 2014 at 11:43 am

Sounds like a good idea. How much does it cost to install the meter? Can a person do a sub meter for electric? We have a large house that we lease out which also has a guest house. We will be renting both seperately. However; both are on one electrical meter. Since the tenants are related they try to estimate usage, but if they could know for certain how much each uses I’m sure it would prevent future issues.

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Tom Sylvester April 14, 2014 at 4:24 pm

Karen – The meters that we purchased for the trial were $100 each. Because the lines were already split and setup, all we needed to do was install the meters after the main meter. If this is all that needs to be done, I would imagine a plumber could do it for a few hundred bucks.

With that said, if all of the water lines are not separated, then it would cost quite a bit more to get them separated. I saw a few people who talked about having a company do this and they were talking about several thousand dollars, so I guess it all depends.

In your example, is the electrical separate for the main house vs the guest house? If so, the easiest solution is to just install a second meter and truly have them be separate instead of trying to use a submeter.

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Liam G April 14, 2014 at 5:13 pm

Karen, One of my Realtors does do what you suggest with their electric meters. They have a master for the building then submeters for each unit. In their rent, they allow a certain amount of electric usage per month. If the annual usage is over their monthly allotment, the tenants get billed.

This is not inexpensive to set up and requires that each unit be separately wired.

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Giovanni April 14, 2014 at 11:45 am

Pure genius and a great post @Tom. Any thoughts of going into the submetering business?

Are the submeters web connected or does someone have to go read them?

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Tom Sylvester April 14, 2014 at 4:25 pm

Thanks Giovanni. If things work out, we may offer this service to other landlords. Not only would it then be another stream of revenue, but it would increase the amount of other properties in the area that have the tenant pay for water.

The first 2 meters require physical reading, but if we decided to offer it as a service I’m sure we would look into remote reading.

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Sharon Tzib April 14, 2014 at 11:46 am

I agree with you, utilities can be a real cash flow killer for multis and apartments. So if this works, are you planning on going back and installing at your existing multis, perhaps phasing in as tenants cycle?

I can’t see any red flags with the plan. I would try to make it so the bills could be sent via email, however, since I wouldn’t want to have to spend a lot of time sending the invoices out. Good luck and keep us posted.

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Tom Sylvester April 14, 2014 at 4:30 pm

Sharon – Yeah, the plan would be to do this on all multi-units and phase it in with new leases.

In terms of invoices, that is definitely a consideration. We are looking into the paperwork that we will have the tenants sign when taking the water over and potential reduce a charge if they go with email bills instead of paper. We could then potentially automate it in the future. For those that want a paper invoice, we would outsource the creation/mailing of those invoices.

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Roy N. April 14, 2014 at 12:03 pm

Tom,

We began sub-metering water on our properties last year. We did not bother to setup a separate company as we are only planning to service our own properties.

We have been toying with the thought it may be time to setup a separate property management (operational) company to look after the properties, so perhaps the sub-metering would be a good fit.

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Tom Sylvester April 14, 2014 at 4:33 pm

Roy – That is great. What has your experience been after a year? Have you had any issues with the tenants not paying since you are billing under the same company name as they are leasing from? That was our initial reason for a separate company to start, but also to potentially offer it as a service in the future.

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Shawn Holsaple April 14, 2014 at 1:10 pm

Great concept! I’m looking to hearing more about it as you move forward with this project.

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Tom Sylvester April 14, 2014 at 4:33 pm

Thanks Shawn. I’ll probably provide an update in a future post.

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Jason April 14, 2014 at 1:27 pm

I’m looking forward to how this goes for you. I’m about to put a 5-unit under contract and the utility conversion is one of the things that helps make this a deal.

Jason

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Tom Sylvester April 14, 2014 at 4:34 pm

Jason,

Are the water lines already split in the 5 unit and you just need to add submeters? If not, there could be a significant cost to split the water lines.

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Liam G April 14, 2014 at 5:10 pm

Tom, Awesome idea. I’ve got a lot of multis in my area that have non-separated utilities. This drives many potential buyers away. Your solution sounds great. Thanks for sharing.

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Tom Sylvester April 17, 2014 at 4:34 am

Thanks Liam. Good luck.

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Yuliany April 14, 2014 at 7:10 pm

I also heard about water submetering for the first time on the podcast, and now I’m in the process of metering my rentals in Phoenix, AZ. The property manager already give the tenants 90 day notice that they will have to start paying for water and sewer.
The company I went with handle the reading, billing and collection. They are able to stop service in the case of non-payment. I keep my rent low so tenant will not mind paying their utilities.
I love reading and listening on BP, I always learn new things from people who are smarter than me.

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Tom Sylvester April 17, 2014 at 4:35 am

Awesome Yuliany. It’s great to see others learning, listening and taking action as well. My guess is that I a lot of people get new ideas everyday from blogs and podcasts, but only a small portion act on them.

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Charlie Williams April 14, 2014 at 7:23 pm

Great article Tom. We just bought a tri-plex. It only has 1 meter. I remember Serge talking about that sub-meter thing. I’m going to check into that here in my area. My partner is a master plumber. I will see if he has any idea also.

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Tom Sylvester April 17, 2014 at 4:36 am

Great Charlie. Helps having a plumbing resource as a partner.

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Ron April 15, 2014 at 1:53 am

Great information. Idea to split to a DBA is good. Maybe even split it off to your property management company (we have too many LLC’s holding real estate so easier to send to 1 llc as a prop mgmt company).

We make all payments from tenants to cover all past due and charges prior to being applied to rent. So if they are behind then a notice of potential eviction is on it’s way.

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Tom Sylvester April 17, 2014 at 4:38 am

Thanks Ron. The idea of the DBA was to potentially have it be the PM company.

Interesting idea on payment being applied to other things first before rent. I’ll have to look into that.

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Sara Cunningham April 15, 2014 at 2:13 am

Just bought a triplex too and have the same issues with water and electricity. I managed to get the tenants to pay more rent since I couldn’t find a quick and easy solution to the problem but I’m still not happy with it. Looking at the bills from the last owner sewage and trash costs more than the water does in my area. I’m going to look into sub metering too but still think it might be cost prohibitive since the water lines aren’t split. Please keep us updated seems there are a lot of owners with the same problem would be great to find out how it goes.

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Tom Sylvester April 16, 2014 at 5:02 am

Sarah – I would recommend running the numbers. Get some quotes on splitting the lines/sub-metering and compare that to your existing rent/bills. See what your payback period would be. My guess is that if the lines are not split you may want to pursue another option.

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Adrian Tilley April 15, 2014 at 8:39 pm

So this is super picky, but that’s what lawyers do. A d/b/a is not a separate business, it’s just a new name you can do business under. I don’t think that kills your plan, except that I’m not sure the d/b/a can “pay” the underlying company, as they are actually one and the same.

I love the submetering idea though. I don’t even know why you’d want another company name.

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Tom Sylvester April 16, 2014 at 4:59 am

Adrian – The DBA was not going to be for my real estate business, but a DBA for a sole-proprietor. So it would in fact be a different business than my real estate business. I was not clear in my post so I do see the confusion.

There are a few reasons for putting it under a different name.
1 – I’m concerned that some tenants may not pay the bill if it is coming from the same company that is charging them rent. Have a bill from a different company will disconnect paying rent and paying water.
2 – Longer term thinking, it would be the start of creating a property management company.

With that said, I actually like the idea you mentioned of using a DBA for my real estate entity. It would allow us to bill under the new name, but ease the accounting since it is all going to the same business anyways.

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Ryan April 16, 2014 at 12:03 pm

Are you installing actual meters or using RUBS (ratio utility billing system)? I am looking into having meters installed but am guessing our plumbing is not configured in a way that will make this option cost effective. The company I contacted suggested RUBS as another option. Based on my understanding of how RUBS works, it does not sound like we would need to employ a company to go that route but a) could do it ourselves or b) have our property management company do it.

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Tom Sylvester April 17, 2014 at 4:42 am

Ryan – We are planning to actually install sub-meters. RUBS in the title was probably not correct. If you cannot do sub-meters, RUBS may be an option. I would just check with your state.

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Gerry April 18, 2014 at 3:47 pm

Good article Tom. I have been wondering what other property owners have done to transfer property costs to the tenant where ever possible. This is what we have done.
Our current residence has a 2 bedroom suite which all ran off one hydro meter. Previous owner showed copies of their hydro bills which were through the roof. The suite has electric heat, our part of the house has gas heat. We share a large electric hot water heater.
Water, sewer and garbage are billed with the property taxes (unmetered to date) so it is a fixed cost we are stuck with. The suite consists of 30% of our floor area so that amount of the property taxes and utilities is tied back to the suite as a cost of doing business.
Shortly after we bought the house, we installed a second hydro meter, one for us, one for the suite, which cost about $1000 by the time we were done with permits, connection fees and materials. This expenditure for the second meter saves me $100 per month off the hydro bill so I am seeing that payback in less then a years time. We have also inceased the rent by $100 per month since we purchased and added a washer and dryer to make the suite more desireable to live in. Rental increase will pay for these in less then a years time as well. The one last change that I needed to make is to seperate the suite off our hot water heater which I estimate will save another $25-$50 per month at a cost of approximately $500 for the conversion.
I guess what I’m trying to say is that we invested $2500 which will give a payback in one year by seperating the two units, we don’t have to worry about the tenants driving our utility costs unexpectedly through the roof as they have to put the hydro in their own name and when we are ready to rent out our part of the house there will be no disputes between tenants over utility costs. I feel that this was a good expenditure as it transfers tenant costs back to the tenant and also increases my monthly income by $250 for a small investment of $2500 after the first year. I also feel that when it is time to sell I will also realize benefits of a higher selling price and attractiveness because of the seperate metering already in place.

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Michael Anthony April 19, 2014 at 5:35 am

What you are suggesting is 100% NOT RUBS. It is submetering, plain and simple. RUBS is altogether different and a much simpler, less expensive option IF your building doesnt have sub-meters. We RUBS bill our Tenants, no problems. If any of them ever had the chutzpah to not pay (Its never happened), we’d evict them and take the payment out of their security Deposit. Simple. We RUBS based on % of occupants. (Landlords need to do 2 things: 1. Make sure RUBS is allowed in their area 2. Make sure it is clearly delineated in the Lease)

If you have separate water lines, OF COURSE, yes, submeter & Bill. But if not, for us, its definitely not worth the trouble & expense to change the plumbing around after the fact in order to be able to install sub-meters since the costs would be tens of thousands.

All new construction should be separately plumbed w/ submeters.

But for our existing buildings we, of course, use RUBS (real RUBS) AS ALL LANDLORDS SHOULD.

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Tom Sylvester May 8, 2014 at 4:01 am

Michael – Thanks for pointing out the difference between RUBS and sub-metering. Yes, we will be using sub-metering.

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Jen Kurtz May 7, 2014 at 9:04 pm

I never heard anyone talk about this before but I have personal experience with a RUBS system…. And I hated it!! I won’t say the company we used for obvious reasons but the whole system is very difficult to explain and justify to tenants as its biggest obstacle. No one ever thought their bill was fair and many people thought we were doing something illegal (not illegal, but still very difficult to justify). The residents received this bill and were to pay to the metering company and then the company sent us one check for our utility reimbursement for the water/sewer bills we already paid, after they took their cut for collecting of course. Oftentimes, their billing was tremendously behind and they would often ask me for all the copies of original bills more than once. Collection was baf, tenants sometimes would flat out throw that bill away and it basically wouldn’t hold up in court as our judges here rule we can’t go after the tenant for the bill since there is no individual meter. Its a huge headache and you pay for its awful administration and weak collection. I hope you decide against it for your sake! :)

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Tom Sylvester May 8, 2014 at 4:03 am

Thanks for the comment Jen. As Michael pointed out in his last comment, RUBS and sub-metering are different. We are in fact using sub-metering.

Hopefully others can benefit from the experience that you shared.

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Jen Kurtz May 7, 2014 at 9:08 pm

I should have also mentioned that perhaps this experience was so bad because the company and owner I worked for did not set up this contract. It was previously put in by the owner who foreclosed and left a slew of issues. This was my only experience with this type of utility structure to present day!

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Michael Anthony May 8, 2014 at 6:45 am

@JenKurtz

Jen: You guys didn’t handle it well. A tenant’s RUBS bill, if properly allowed for in the Lease, is not an option: It’s a contractual obligation. Include a copy of the entire Building’s Water Bill with every Tenant’s bill and a brief explanation of how their pro-rata amount was arrived at. .

Then, if they don’t pay, kick em out or do not renew when their next Lease is up. Simple. And don’t forget to deduct your due payment from their security deposits when they leave.

Either way, they must (and will) pay for the water they use. Tenants need to be properly trained and taught that they must honor their contractual obligations.

Good Luck

MA

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Michael Anthony May 8, 2014 at 6:47 am

One addition: FYI: You can skim 10% off the top off the bill as a good-faith measure so that NO tenant can ever argue that they are being over-billed. It costs you 10% but it’s worth it.

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Jen Kurtz May 8, 2014 at 7:36 am

I agree with you Michael. When I was working at the property that used RUBS it was implemented by prior owner and prior mgmt. It wasn’t introduced to tenants in the proper way and that’s why would could hardly enforce it. Some people paid it without question but not others. I had no problem setting up new leases with it being properly explained but it was an ongoing issue with residents that we already there. Since the property was formerly REO it had a lot of deferred maintenance and in my area of Youngstown, where you are constantly battling a shrinking population, we really had to pick our battles. We clearly couldn’t just go evicting 50 units out of 220 and expect to fill them in 3 weeks. We had issues with the one company we had the rubs with, I realize that doesn’t speak for all of course. But again, my experience with it was just one of many and other externalities made it worse I believe! :)

Ultimately, it did get phased out and rents were adjusted for residents to only have electric in their names.

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