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RUBS Income in Commercial Real Estate

December 5, 2023
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Key Takeaways

Introduction:

In many older multifamily properties, units are not individually metered for utilities, so owners/landlords use RUBS (Ratio Utility Billing System) to determine 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.

Key Takeaways:

  • RUBS is 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.
  • Many cities have restrictions on RUBS, so it’s important to check local regulations.

How it Works:

In order to successfully implement RUBS in a multifamily property, landlords need to take a few steps. 

  1. Landlords need to conduct a property analysis to determine the appropriate factors to use for calculating utility bills. 
  2. Then, landlords issue lease addendums to current residents, explaining the switch to RUBS and obtaining their consent. 
  3. Next, landlords upload billing and unit information into an integrated system and add recent master utility bills to the system. 
  4. Once enough residents are signed onto RUBS, individual utility bills will be issued to residents, and they will directly pay a utility billing company. The company will then reimburse the landlord or property owner.

Key Components:

  • Unit Square Footage and # of Occupants: RUBS relies on factors such as unit square footage and the number of people living in a unit to determine the distribution of utility costs.
  • Lease Addendums: Landlords need to have tenants sign lease addendums agreeing to RUBS to ensure compliance and transparency.
  • Integrated System: Landlords need to utilize an integrated system where billing and unit information can be uploaded and maintained.
  • Utility Billing Company: A utility billing company is used to handle the billing process and reimbursement to the landlord or property owner.

Benefits:

  • No Capital Investment in Metering Equipment: RUBS allows landlords to avoid the expense of installing metering equipment, making it a cost-effective solution.
  • Expense Reduction: Implementing RUBS can decrease expenses, increasing Net Operating Income (NOI) and overall profitability for landlords.
  • Charge for Multiple Utilities: RUBS enables landlords to charge tenants for various utilities such as trash, water, gas, and electricity, resulting in additional income.
  • Decreased Utility Usage: Tenants in RUBS properties tend to use utilities more responsibly, leading to lower utility costs over time.

Takeaway:

RUBS income in commercial real estate offers an effective way for landlords to reduce costs and increase profitability without raising rent prices. By implementing RUBS, landlords can allocate utility expenses based on factors like square footage and occupancy, resulting in fair and transparent billing. 

However, it’s important to be aware of local regulations and potential drawbacks such as tenant consent and restrictions imposed by municipalities. 

Overall, RUBS income is a valuable tool for commercial real estate professionals looking to optimize financial performance and provide cost-effective solutions for multifamily properties.

Please note that compliance with local regulations and consulting legal professionals familiar with RUBS implementation is vital for a successful and compliant integration of RUBS income.

Disclaimer: The information on this website, including glossary definitions, is for educational and informational purposes only and not intended as professional advice. While we strive for accuracy, we make no guarantees regarding the completeness, reliability, or timeliness of the information provided. We are not liable for any loss or damage arising from your use of the site. Investment decisions in commercial real estate should be made based on individual due diligence and professional advice. Laws and regulations are subject to change; always consult legal and financial experts before making decisions.

Sources:
https://www.commercialrealestate.loans/commercial-real-estate-glossary/rubs-income/

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