Utility costs such as water, sewer, gas, electric, and trash are among the largest and least predictable operating expenses for multifamily property owners. How you allocate these expenses directly affects Net Operating Income (NOI), tenant relationships, and compliance. Get it wrong, and you risk financial losses, disputes, or even legal issues. Get it right, and you deliver fairness, transparency, and long-term sustainability.
Drawing from my own experiences, I want to share proven strategies and best practices that multifamily property owners can use to maximize the capabilities of a utility billing system. This guide explores the two most widely used allocation methods, submetering and Ratio Utility Billing Systems (RUBS), highlighting best practices to maximize fairness, compliance, and resident trust.
Accurately splitting utility costs among residents isn’t just an accounting task; it directly shapes tenant satisfaction and financial health. Over the past fifteen years, I’ve worked in roles across the utility billing lifecycle, including accounts payable, implementation, client success and product development. I’ve seen how the right approach can reduce disputes and create clarity for everyone involved.
Here are two key risks property owners face without fair allocation:
Fairness Concerns: Residents expect to pay only their share, not subsidize wasteful neighbors.
Compliance Risks: Many jurisdictions regulate billing methods. Noncompliance may lead to fines, disputes, or lawsuits.
Recent headlines highlight these risks. In Arizona, mobile home community residents reported that a broken utility billing system led to eviction threats after receiving inflated charges. This shows how poor allocation practices can destabilize entire communities when residents lose trust in the billing process. In Los Angeles, tenants went on strike after utility charges doubled without explanation. Their protest forced the landlord to credit residents more than $25,000 in disputed charges. Investigations in other cities uncovered hidden fees, confusing formulas, and poor transparency, eroding tenant trust.
Utility costs such as water, sewer, gas, electric, trash, represent a significant and often unpredictable portion of operational expenses for multifamily properties. If they aren’t properly recovered, NOI suffers. Worse, unclear billing can lead to disputes, complaints, or compliance issues that drain staff time and money.
Whether your property is submetered or uses a Ratio Utility Billing System (RUBS), the goal remains the same: ensure that each tenant pays their fair share based on usage, and they should understand how their charges are allocated. I will address best practices for ensuring financial responsibility in a future publication.
Accurate billing starts with correct data. For submetered properties, this means ensuring meters are functioning, regularly read, and associated adequately with tenant units. For RUBS, it means having current and correct data for occupancy, square footage, number of bedrooms/bathrooms, and shared amenities.
A single misassigned meter or outdated occupancy record can snowball into billing errors, lost revenue, and resident frustration.
There is no one-size-fits-all approach. I often configure multifamily properties with these cost allocation methods based on the spectrum of utility and ancillary charges:
Cons:
Example:
A 150-unit property spending $180,000 annually on water/sewer could save $36,000-$72,000 by transitioning to a submetering system.
RUBS allocates utility expenses through a formula selected by the property, often based on occupancy, unit size, or room count.
Pros:
Cons:
Example:
A 100-unit property with $120,000 in annual water/sewer costs may recover $18,000–$36,000 annually through RUBS, depending on allocations and behavior changes.
While these savings highlight the potential of RUBS, property managers must also consider important regulatory constraints, particularly in HUD-funded housing or tax credit properties., the IRS and Treasury clarified that while RUBS is not prohibited, utility allowance regulations require that the amount paid for utilities be included in the gross rent. Property owners relying on tax credits must navigate these limits carefully. RUBS can still be valuable as a low-cost recovery method but can become complex. Submetering offers a more stable alternative by aligning usage directly with charges.
The correct method depends on your infrastructure, property layout, local regulations, and business goals. Consistency and clarity are critical since regulations require that tenants understand how charges are calculated.
Regardless of method, success depends on three things:
Get the Data Right
Prioritize Compliance
Focus on Transparency
Modern utility billing software helps property managers move from manual headaches to efficient automated processes.
Capabilities include:
Flat fees may seem simple, but they create financial risk and fairness issues. RUBS is cost-effective and fast to implement, but it comes with compliance challenges and tenant skepticism. Submetering requires more investment, but it delivers the highest levels of accuracy, fairness, and long-term NOI protection.
By pairing the right allocation method with accurate data and billing technology, property managers can turn utility billing into a value-added service, protecting NOI, improving transparency, and building resident trust.
Next Steps: