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What is a Utility Recovery Program?

If you own or manage multifamily properties, this page will tell you what utility recovery is, and why it’s important for your business.

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What Is Utility Recovery?

As a multifamily owner, next to mortgage and taxes, utilities are probably one of your largest budget line items. 

In 2020, our industry faced new challenges and costs. As we were ordered to stay home, utility consumption increased dramatically. Combined with rate hikes early in the year, this resulted in utility expenses that were much larger than many had budgeted for. 

There are two great cases why residents should pay their own utility usage.

The first is that waste occurs when we use services we don’t pay for. Lower AC settings, longer showers, lights left on are all symptoms of not understanding the true cost of service. When people pay the bill for their consumption, they naturally tend to conserve.

It’s not uncommon to see a reduction in utility bills 20% once a utility recovery program goes into effect.

The second case for charging residents for their utilities is that it reduces the owners liability and provides insulation against fluctuating usage and rates, and it gives owners more control over their pricing matrix. If residents are paying utilities and the vacancy rate creeps up, it’s easier to reduce rental rates or provide an incentive without feeling as much of a pinch.

Utility billing increases NOI as much as $40-$120 per unit per month, and lowers cap rate as a result. A lower cap rate means more favorable financing terms! A property for sale with a recovery program will be more valuable than a similar property without utility recovery.

A common concern by owners implementing a utility recovery program is that residents will move out. In practice, this rarely happens. It’s difficult, time-consuming, and often expensive to move.  While no on enjoys an extra bill to pay, good communication with your residents will alleviate most of the angst quickly. Residents will understand that they are paying one way or the other, either in higher rent or by paying their usage. We provide our customers with the tools they need to communicate the change to residents, including conservation tips. 

One strategy for dealing with the transition from all bills paid to a utility recovery program is to roll out the program for new move-ins and lease renewals. We’ll help you with the lease language you need to add if you don’t already have it.

Five Reasons Why You Need a Utility Recovery Program

1

Utilities are among your highest expenses, right after mortgage and taxes.

2

A utility recovery program increases your NOI and lowers your cap rate.

3

Water, gas, and electric rates are increasing across the country, putting further strain on your budget.

4

Residents are spending more time at home, causing an increase in your expenses.

5

Utility recovery helps conservation efforts. Over time you will see as much as a 20% reduction in usage.

How to Capture Data for a Utility Recovery Program

There are two basic ways to capture the data needed for billing your residents for utilities. Submetering involves installing a meter between the master meter and the resident’s unit. These are often required by law during new construction. They can sometimes be installed in existing buildings as well. Submeters provide a fast ROI, often under 6 months.

When submeters cannot be installed, a ratio utility billing program may be a good alternative.

RUBS programs are a good method for allocating utility expenses in communities built before 1980 due to older plumbing configurations that may render submetering impossible or cost-prohibitive. RUBS programs will also provide an incentive for residents to conserve utilities since they are now paying a bill. Over time, having your master utility bills decrease up to 20% is common based solely on a resident’s conservation efforts.

A RUBS program provides protection to owners against escalating utility costs that negatively impact NOI and are a good alternative to rent increases since residents shopping for a new home are likely to compare rent costs across properties.

Is Utility Recovery Fair?

Most people understand that things they consume carry a cost. One resident myth is that owners are making a huge profit on the apartment they rent. As you know, the truth is that multifamily real estate is a cash-intensive business, sometimes it helps for residents to understand that the high operational costs keep the property looking great and running smoothly. The major fear of owners is that residents will move if they charge for utilities. In practice, this seldom happens. Communication is key when rolling out a utility recovery program. Lease language needs to be clear and billing needs to be transparent. We help our clients navigate this change smoothly so no one is surprised by a new utility bill.

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Banyan has been on the Inc 5000 Fastest Growing Companies list for six straight years.

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We attribute our success to treating each customer like our only customer.

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Our mission is to help you recover the maximum utility expense possible, increase your NOI, and help you conserve water, gas, and electric resources.

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Our regulatory experts will help you comply with your local regulations and conservation programs, and can assist with benchmark requirements.

From Our Clients

  • Best Implementation

    I am very impressed with the level of attention MUC gave us as we transitioned to their platform. They addressed all our questions, thoroughly validated the data we supplied, and made certain our account was setup exactly as intended. One of the best implementations I’ve been through. Kudos!

    Followup

    Thanks again to you and your team — it’s really made administering RUBS a breeze compared to our prior experiences.

    Patrick McNamara
    M | J | D Development

  • Responsive and Professional

    We have found Banyan to be an extremely professional company. Their representatives are always responsive and attentive to our questions, as well as being very knowledgeable of all state regulations regarding utility billing. They gave us suggestions for increasing our revenue and we have seen a marked increase in collections and revenue since we started using their services. We are very pleased with all aspects of their service and look forward to a long, continued relationship with Banyan.

    Client From Dallas, TX

  • Increased Property Value

    Many other property owners have told me that they do not have the money to make the initial investment to install meters. But I recommend that they find a way to fund it because the payback is rapid — usually about one year to 18 months, and the revenue recovery is ongoing.

    For example, when we purchased a 169 apartment home community in Indianapolis, I asked our bank to add the cost of meter installation onto our loan, which they readily did after I demonstrated how the program significantly increases property value. It cost about $225 per apartment home to install the gas submeters at the property, for a total of $38,025, and our mortgage increased by only $500 per month.

    The gas bill for that property alone is $85,000 per year and we recover about 70 percent of those costs, after factoring out common area and vacant apartment home costs, a savings of $59,500 per year, which far surpasses the initial installation cost. Another benefit is that our property value has increased exponentially, which I calculated by taking the $59,500 at a 9.5 percent cap rate (rates can vary) which raised the property value by more than $500,000.

    Client From Indianapolis, IN

  • Easy to Work With

    I don’t mind sharing some information at all. Let me start off by telling you that I have been the manager here at OBT for a little less than 2 years. We have 214 units. The system was installed by the developer at construction so I can’t share any feedback related to the process of installing or speak to any differences prior to the system being installed.

    When I arrived the association was dissatisfied with the prior billing company (AUM) and shortly thereafter we switched to MUC. We recently renewed our contract with them for a second year. We’re pleased with their work. They were responsive to some concerns shortly after the switch and sent Josh over to Phoenix from San Diego to assist in some investigation work on-site. The issues were tied back to bad information passed on from the prior vendor. They have been easy to work with and were agreeable to modifying the billing dates and the timing of their process in order to accommodate some property specific needs.

    Client From Phoenix, AZ

  • Seamless Transition

    Banyan has done an excellent job with our properties. They are very professional and have seamlessly transitioned many of our apartment buildings to the Ratio Utility Billing program, as well as setting up online automated meter reading and billing with our newer properties. I would recommend them to small and large property owners alike.

    Client From San Diego, CA

  • Adding to the Bottom Line

    We have calculated the increase in property value that comes along with submetering. For instance, on a property with 285 apartment homes with an average water bill of $7,000 per month, we can add up to $6,000 or more per month to the bottom line. At a 9 percent capitalization rate, that equates to a property value increase of $800,000.

    Client From Tampa, FL

  • Recouped Cost

    The results did not disappoint me. In December the bills declined after we began billing residents for their water consumption. In March 2003 and April 2003 bills were approximately $270 per day; May fell to $254. The difference between $462 in April 2001 and $270 in April 2003 is $192 per day – a payback of less than one year. The payback actually is much faster because we are collecting about $2000 each month from the billing program, an amount that should double by year-end as new leases are signed.

    Client From Columbus, OH

  • Great Incentives

    Accurately monitoring each apartment home’s electrical usage gives a greater incentive for residents to conserve energy, since they are paying for exactly what they use. During a one-year period, an average of 17 percent less energy was consumed in the submetered residences.

    Client From Portland, OR

  • Conscious Energy Use

    An obvious trend has emerged now that residents are responsible for their own utility bills. Before the days of submetering, it was not uncommon to see windows open or hear air conditioners running in the middle of winter with heaters going full blast. It was a way to cool down the apartment, but now that residents are responsible for their own bills, they tend to just turn down the heat.

    Client From Columbus, OH

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No obligation, we’ll even audit a billing program you are already running. Due to the cost of providing high-quality service, we have a twenty-unit minimum.