Note: below is the original version of an article we submitted to Common Ground magazine and that appeared in the March/April edition.
What is green and erases red ink for multihousing, apartments, condominium associations and shopping centers? Submeters, Ratio Utility Billing and hybrids of submetering/RUBS save money and encourage conservation.
Let’s admit it. At one time or another we have all been guilty of waste.Have you ever entered a hotel room and turned down the thermostat just prior to going downstairs to the hotel bar? Perhaps you piled your plate with a little more food than you could eat at a buffet.Is there anyone who is not guilty of wasting water in one way or another…perhaps by running the water while you brush your teeth or not attending to a water leak as quickly as you should?
Yes, almost everybody is guilty of wasting water. To a certain degree, it’s not our fault. It is human nature to take something for granted when we’re not paying for it. If we were all reminded daily that only 3% of the world’s water is drinkable, that there is a very complicated process to delivering that clean water to your home, and how important water is to our communities, maybe we would be more mindful and not waste such a precious commodity.
If we knew the history of water and how the great aqueduct systems of the Roman Empire helped make it so mighty for centuries, perhaps we would have greater appreciation of this invaluable resource. Very few people consider “the history of water.” Maybe more are mindful of the importance of conservation.
The brutal truth is that for most of us humans, saving money is an even greater motivator than conservation. If we were all billed for the water we use, we would use it more wisely. Individual responsibility is key to bringing many people together in a community for the common good.
The good news is that you can bring responsibility to water consumers by using inexpensive sub-metering technology.A 438 page report titled National Multiple Family Sub-metering And Allocation Billing Program Study sponsored by the United States Environmental Protection Agency, National Apartment Association and National Multi Housing Council determined that sub-metering reduces water costs 15% to 40%.*
The reason is simple. With a water bill in our hands every month, we are more mindful of our water consumption. We fix leaky toilets and faucets, we don’t turn on the spigot 20 minutes before stepping into the shower stall and we brush our teeth without running water and money down the drain.
If your association does not currently have submeters, are the hardware and installation costs a good investment? Studies have shown that because sub-metering is so inexpensive, the community association’s investment typically pays for itself in 12 to 18 months depending on how the buildings are plumbed and the utility’s water charges. How do the numbers work?
Total hardware & installation costs average about $250 (hardware from $110 to $150 and installations from $50 to $200 depending on building’s plumbing configuration.) A savings of 25% of an average unit’s monthly $60 water bill is $15 per month or $180 per year.
How does submetering affect association budgeting?The community association still pays the utility. But instead of hoping that this month’s association water bill doesn’t cause a problem by running over budget, the association is charging the residents for what they used. What is billedto the association offsets what is billed by the association.
How are residents affected?Residents are empowered to reap savings when they repair leaks and install conservation-friendly showerheads, toilets and faucets.
We’re all familiar with what happens when an association without submeters decides to locate leaks throughout a building. Maintenance asks residents to not use water and then takes a look at the master meter. If the dials are moving, there are leaks. Maintenance then needs to enter each unit, looking for leaks. Residents are disrupted but leaks are found. A couple months later, there are new water leaks and the process needs to be repeated.
When condo units are submetered, any resident that suspects a leak can pinpoint the problem. The occupant makes sure all faucets and appliances are off and then takes a gander at the meter. If the dial is moving, there’s a leak. If that’s the case, the first thing to do is check the toilet tanks. We have hard water in Florida – meaning the water is high in mineral content. It is recommended that Floridians change seals inside tanks every 6 to 12 months.
Submetering reduces instances of water damage.Because leaks are being repaired, there are less cases of water leaking into other units and common areas.
Submetering is fair. It’s wrong when we have to pay for other people’s abuse of a resource we all pay for equally. Sub-metering is “green.” Holding residents accountable for water consumption in drought-prone Florida is good citizenship. Sub-metering is a way to do something constructive about lower water levels in the Everglades.
What does a submeter look like?
A small section of pipe with a 2 to 3 inch meter is installed where the water pipe or pipes enter the unit – typically adjacent to the hot water heater or in a unit’s laundry room or on an exterior utility area. If electronics are used, a tiny battery-operated transmitter is connected to the submeter, small repeaters are installed at strategic spots and a central data collector is placed in the clubhouse or central office. Submetering is unobtrusive and requires very little space.
Who pays whom?
A third party billing company typically monitors all of the units’ consumption and bills them based on the rates that the utility is charging the community association. The third party billing company collects the money and sweeps the funds to the association minus an administrative fee. The third party billing company sends a monthly “Reimbursement Statement” to the association. This is a detailed itemization of moneys collected and remitted as well as what should be an easy-to-understand explanation of rates charged by the utility.
Our condo association already uses submeters and we’re saving money. What can we do to put even more money in the association’s pocket?
Congratulations to condo associations that use submeters. You are halfway there!
I’m kidding. Actually, you may be 70% or 80% there or you may be one of the lucky associations that is getting all the benefits it is due. Check your contract with the third-party billing company.
Do the administrative fees charged by the third-party billing company to the community association comport with the contract? You may be due a substantial refund. Are the submeters and electronics properly functioning so that all money due from residents is being collected? Are resident bills correctly itemized? How would residents grade the third-party billing’s customer service?
Steve Hirsch is marketing manager at Commercial Water & Energy, a national third-party billing & submetering company that has been in business for 18 years. He enjoys customizing optimal solutions for specific properties and is always available to answer questions about submetering, RUBS and various hybrid solutions. Ask and we’ll customize a submetering or RUBS solution for you.
In order to encourage water conservation, most water utilities have adopted a tiered billing structure for all types of property classes – including multifamily. As water consumption per apartment unit reaches higher levels, the rate per unit increases for set intervals – the definition of tiered water bill. For examples, below are tier structures in Tampa, Colorado Springs and Miami-Dade.
Tampa’s multifamily water and sewer bill structure:
Apartment Customer Class: Multi-family (a)
0 to 2 ccf* per month (first 2 ccf per month, per ccf)
3 to 6 ccf* per month (next 4 ccf per month, per ccf)
7 to 12 ccf* per month (next 6 ccf per month, per ccf)
13 to 21 ccf* per month (next 9 ccf per month, per ccf)
Over 21 ccf* per month (in excess of 21 ccf per month, per ccf)
* ccf = 100 cubic feet or 748 gallons.
(a) Calculation is based on the number of dwelling units X the tier range.
Due to drought conditions, Colorado Springs announced what amounts to an additional 25% surcharge rate for its “Block 3” water bill tier:
Tiered water rates as of Aug. 1, 2013
CF = cubic feet
Note: One CF = 7.48 gallons
Non-water shortage pricing
Water shortage pricing
Up to 999 CF/$0.0311 per CF
Up to 999 CF/$0.0311 per CF
1,000 to 2,499 CF/$0.0584 per CF
1,000 to 2,499 CF/$0.0584 per CF
2,500 CF or more/$0.0885 per CF
2,500 or more CF/$0.0885 per CF
$0.0221 per CF 2,500 CF or more
In Miami-Dade, the multifamily tier structure for water and sewer is even more dramatic. Effective Oct. 1, 2013:
For 0 to 4 CCF per unit – $.03740 per CCF
For 5 to 7 CCF per unit – $2.5254 per CCF
For 8 to 14 CCF per unit – $3.154 per CCF
For 15 CCF per unit and over – $4.1705 per CCF
CCF = 100 cubic feet or 748 gallons
As water and sewer costs are already expensive and becoming more so, submetering and charging tenants for water has become a necessity. Varioius studies sponsored by utilities, the EPA and National Multi-Housing Council show that submetering lowers consumption 15% to 39%. Are you paying double the rate for that last 15% to 39%?
Most annual increases in water and sewer rates take effect between July and October. Here’s a sampling of recent increases in water and sewer rates in some of the nation’s major multifamily markets (bear in mind that in most districts, sewer costs account for about 2/3 the cost and water for 1/3:
Miami-Dade’s water and sewer rate increases took effect Oct. 1. Note that the first 400 ccf (about 2,992 gallons) per apartment is only $1.75 per ccf but if your apartments consume more than that, the additional water is 4.28 times more expensive – $7.49 per ccf.
In Fairfax County, VA, the proposed increase in residential base rates goes from $5.50 to $12.79 quarterly. Similar increases are proposed for multifamily water and sewer.
Instead of increasing rates, Murfreesboro, TN lowered breakpoints by 20%. In other words,higher tier structures take effect. Depending on whether your property is consuming at a high level, this could massively increase your water and sewer bill. Water and sewer rates at higher tiers are often 4 to 6 times higher than at lower tiers.
It’s not all bad news. Atlanta is bucking the trend…well, not really. Due to waterrates increases of 233% since 2001, Atlanta’s water and sewer is amongst the most expensive in the country. A small reprieve is that further rate increases probably won’t take place until 2016.
As water and sewer rates escalate, not billing residents for this utility is almost as bad as giving away free electricity – would you do that? Using submeters or RUBS in order to bill residents is no longer an option. Ask Charlie McHill.
In many locales, when a multifamily project’s submetering expense is addressed properly, the developer can reduce and sometimes even purge the hardware costs from its budget.
Many states and municipalities allow the third-party billing company to include a small line-item in the utility bills that will be sent to residents in order to compensate for the hardware costs over time. It makes sense – as local utilities and governments need to encourage conservation, this policy encourages developers to submeter properties and be green.
If you’d like your submeters at a reduced cost or possibly at no cost, tell us about your project. We’ll tell you what is and isn’t allowed in your project’s locale. In areas where hardware cost can be passed off, we’ve got excellent financing options suited for your needs – it’s our job to save you money.Click here to find out how submeters can be free.
When evaluating whether a landlord can bill tenants for water, electric or gas, the first question regards regulations. Yes, almost every state has a set of regulations governing submeters and Ratio Utility Billing. But no, that isn’t all. Within some states, a few counties and even cities have rules. Some cities regulate what types of meters are acceptable and others have a maximum late fee that a third-party biller can charge residents.
Some states and counties allow submeters but disallow RUBS. As crazy as it may sound, a few locales have even banned submetering altogether. One example is the city of Opa Locka in Miami-Dade, FL. I’m sure anti-conservationism isn’t their intention but it is a policy that encourages waste.
Perhaps the most complicated set of regulations is in California. The state has specific requirements governing what types of submeters are permitted. Before submeters are installed, the meters must be inspected. But different locales within Califonia that perform the inspections have different interpretations of the state’s rules. Pretty crazy, huh?
When looking into how to recover water, sewer and other utility costs, the single most common questions center around cost and Return On Investment. And that’s the way it should be – Landlords and Property Managers are bottom-line businesspeople.
Here’s some tidy answers to Frequently Asked Questions about submetering and Ratio Utility Billing. Note the ROI comment about RUBS. The definition of ROI is Annual Profit divided by Investment Cost. But since RUBS has zero investment cost, you’d have to divide by zero…and as you’ll recall from math class, any number divided by zero yields “undefined” as the answer.
Billing residents for water and sewer is a conservation measure that helps profitability of apartment communities as well as condo associations, shopping centers and various mixed use properties. No matter how most people want to conserve simply because it’s the right thing to do, the harsh reality is that green money trumps green conservation.
When people get all the water or gas or electricity they want for no cost, they don’t report leaks and they waste. But when one’s usage is tied to one’s wallet, people conserve.
Charlie McHill: My issue is one of priorities. I just bought the property and there is so much to do. We’re still putting together a long list of repairs and improvements that can’t wait. And we need to train onsite staff about new policies in order to get things running the way we want. I wonder – how soon should I around to submeters?
Me: In a perfect world, businesspeople would prioritize conservation and other green technologies like submeters at the top of their to-do lists. But let’s face it – multifamily operators are always putting out fires. Fixing leaky roofs, evicting bad tenants and repairing HVAC systems can’t wait.
Charlie McHill: So you agree. I should wait a few months before deciding on a course of action with respect to submeters?
Me:With all due respect, you are seeing your water and sewer costs in the wrong light. Although full implementation of submeters and utility billing will save you $18,000 per month, that’s the wrong way to look at it. It’s more urgent than just savings.
Charlie McHill: I like saving $18,000 per month. In what way is it more urgent than that?
Me:You need to repair leaky roofs and bad HVACs immediately because if you don’t, tenants will move out and that will cost you money. You need to evict bad tenants because you need to rent their units to good paying residents. In other words, if you don’t put out those fires, you will immediately feel it in your wallet. Losing tenants is not some abstract concept – the loss of a tenant means immediate loss of rent.
Charlie McHill: So you agree, making repairs is more urgent than submeters?
Me: I agree that making repairs is urgent. But submetering is an urgently needed repair, not a means to save.
Charlie: I’ve got to hear this. (The strange smile on his face had disappeared as he leaned forward to hear what I was saying.)
Me: When JC Penny has a 40% Off Sale on casual shirts, that is an opportunity to save. But since I can continue to wear the shirts that I already own, I don’t lose money if I wait until the next sale. Your situation is different. You can’t stop buying water and sewer until the point at which you are prepared to submeter. You will be losing the $18,000 that I can save you each and every month until you have fully implemented submetering.
Charlie:So you’re saying that my water and sewer system is broken?
Me:Exactly. Your system is broken. You’re leaking $18,000 per month. You need to fix it now.
Charlie: I have to admit something to you (Charlie’s funny smirk broke open into open laughter.) I’ve been playing with you. I already know everything that there is to know about submeters. I probably know more than you about the mechanics.
Me:Really, how so? (I was thinking that this Charlie guy was pretty arrogant.)
Charlie: I was one of the first people in the US to start a submetering company back in the 1990’s. But within a few years, it occurred to me that I could make more money buying submeters than selling them. That’s when I sold the submetering company and focused on the big bucks – buying submeters.
Me: Wait a second. Are you telling me that the better way to make money was to…?
Charlie McHill: That’s right. Selling submeters and billing services was tiring. I’d lay out the merits of submetering:
You make green because your water bill goes down and because residents reimburse you for water and sewer costs.
Managers and owners would agree. But that’s when things would get frustrating. Multifamily operators were always putting out fires – fixing roofs, HVA CS, potholes in the parking lots, evictions, curing code violations, leasing new units, hiring and firing staff. Those things were priorities – submetering was something they wanted to do but they would leave it on the backburner. They didn’t recognize the money that they were losing on water and sewer as a priority.
Me: So you decided to buy properties and submeter them. Wow.
Charlie McHill invited me to drive four hours to meet him at 8 AM on Friday. Why? He wanted to have fun at my expense – pure evil.
It started three days before when Amy, a property manager friend, called. Over the last few years, I had been to the multifamily that she managed three times to discuss submetering with the owner. His residents were using 40% more water per unit than a comparable property nearby – I knew that for a fact because the other property was a submetering client of mine.
Although the owner was spending $23,000 per month on water and sewer, he couldn’t bring himself to invest $75,000 for a submeter retrofit. Even when I offered financing under very favorable terms, he hadn’t agreed. Instead of doing something about his water and sewer problem, he listed the property for sale.
Good news – after being listed for almost 2 ½ years, the property had finally sold to a fellow named Charlie McHill. Upon closing on the 315 unit property, Charlie met with the property’s onsite manager, Amy. She told him that they should have submeters installed and begin billing residents for water and sewer. When she told him about me, Charlie told her to set up a meeting that Friday at 8 AM to discuss the possibility of retrofitting submeters. Charlie McHill told Amy that he believed both in being green and saving money.
I knew what a difference it would make for the property’s profitability. Once residents were paying for their consumption, they would conserve, thus reducing the property’s overall water and sewer bill and of course, the owner would recover costs from the residents. I had studied their water and sewer bills. Being conservative, NOI would improve by about $215,000 per year.
It sounded like a great lead. As the property is a four hour drive from my house, I left at 4 AM. When I arrived at the manager’s office, Charlie asked me to explain how submetering would benefit him and the residents. Using my nifty PowerPoint presentation, I explained the broad strokes first:
When people pay for what they use, they waste less. National studies sponsored by EPA, MultiHousing Council and various utilities demonstrate 15% to 40% less consumption.
In Charlie’s case, since I was familiar with an almost identical property nearby, I had good reason to believe that his consumption would go down about 30%.
About half of his water and sewer bill was related to consumption while the other half was base rates unrelated to consumption. The estimated 30% reduction in consumption would translate to an approximate 15% reduction in his water and sewer bill – from $23,000 per month to about $19,500 per month.
Once we were billing all residents for approximately $19,500 water and sewer costs, a realistic goal would be to recover about 80% of that number – $15,600 per month (more on that later.)
As utilities’ water and sewer rates are expensive and will continue to escalate in order to fund needed infrastructure improvements, giving away free unlimited water is going to become even more expensive.
The most important factors that impact people’s choice of where to rent are location, rental rate and amenities offered. Whether utilities are included is not an important factor.
Charlie told me that submetering sounded like a great idea. He offered me some coffee and donuts. Gee, what a nice guy…but the expression on his face seemed odd. As we spoke, it seemed like he was trying to restrain laughter.
To find out what Charlie knew that I didn’t, check into our blog next week or contact us, no strings attached…but I will want to learn a little about your property in order to evaluate whether submeters or RUBS would work for you.
When National Apartment Association published an excerpt of Leopold Hawthorne’s historic interview a few days ago, many industry insiders were surprised. How could it be that some multifamily experts didn’t even know there was a 300 year old property manager? Would they ever have opportunity to make acquantance with Leopold Hawthorne?
Although Mr. Hawthorne treasures his privacy, CWE has convinced him to launch a national tour. It all starts at Florida Apartment Associaion Annual Conference today through Friday. Meet Leopold Hawthorne at CWE’s booth – #320.
Forgive him if he seems a little cranky at the ripe old age of 300. Don’t be shocked if he complains about troublesome tenants and terrible vendors of yesteryear. You might want to pay attention when he sings the virtues of submetering and RUBS – or at least humor him!
Click below to see where he is interviewed by Mitch Drimmer. To let us know what you think, make a comment below…or if you want to know more about submetering or RUBS, click here.
Is there such a thing as a multifamily or commercial property owner that wouldn’t like to recover water and sewer costs from tenants? Of course, it is not cost effective to submeter certain older properties and RUBS is not permitted in some locales. But experience tells us that almost every landlord that doesn’t already recover water and sewer costs would like to do so if possible.
That being said, why is it that so many property owners continue to give away unlimited free water and sewer when it would be so easy for them to bill via submeter or RUBS? Some of the explanations we hear:
Property Manager: “We’ve always included water with rent. We see no reason to change now.”
Steve Hirsch: In rare cases where a property’s water and sewer costs haven’t increased significantly enough to impact Net Operating Income in a substantial way, this argument is perfectly sensible. But most properties are experiencing rate increases that outstrip even medical costs. Although it was no problem to give away free unlimited water 25 years ago, that is no longer the case. My article in Florida Apartment Association’seConnect shows how billing residents for water enables them to save money while increasing your profits.
Property Manager: We fear losing good tenants if we begin billing for water.
Steve Hirsch: Submetering and RUBS are common practices. The vast majority of tenants do not object. Taking a 200 unit property with average $800 rent and a $10,000 water bill exclusive of common area, the math usually works something like this:
Two or three tenants move out and are replaced within a month or two, causing a one-time loss of about $3,000 revenue.
The property gains recurring revenue of about $8,000 per month.
Common strategies to soften the impact of utility billing is for the property owner to subsidize a percentage of each unit’s water and sewer bill for the first 3 to 6 months or to give each unit a fixed monthly credit against the utility bill.
Property Manager: “Our occupancy is low. We’ll start billing for water once we reach our occupancy goal.”
Steve Hirsch: New tenants should be trained to pay for their own water and sewer use from the get-go. Otherwise, new tenants will feel ambushed when utility billing is enacted shortly after they move in.
Property Manager: “We know that we should be submetering or RUBSing the property and we fully intend to do it. But how do we compare one billing company to the next?
Steve Hirsch: Now you’re talking! I thought it would be a good idea to write a primer that explains how to compare billing services. Fortunately, Florida Apartment Association agreed and published my article. Read about how to compare submetering and RUBS services here.