Multifamily Utility Company reports an untapped revenue stream that will increase multifamily cash flow and increase property value by allocating utility costs back to tenants through utility billing.
Over the past few years, apartment investors and property managers have had a plethora of issues. Downward pressures on rents, increased vacancies, persistent competition and decreased property values have impacted the multifamily market. Even more so, the soaring costs of utilities that continue to spike year after year. The EPA forewarn that the investment in U.S. drinking water infrastructure improvements from 2007-2027 are estimated to be $334 billion. Multifamily investors are looking towards ancillary income in defense against these rising costs and also increase their net cash flows. According to Brian Stone, President of Multifamily Utility Company, there is an untapped revenue stream many multifamily investors are turning to. That is, by allocating utility costs back to the tenants through utility billing.
Increasing multifamily cash flows can be as simple as increasing the property’s net operating income (NOI). For example, take a multifamily asset of 150 units with at value of $5 million with estimated monthly water/sewer bill of $5000, electric/gas bill of $7000 and a monthly trash bill of $1000. After removing the common area deduction (CAD) of 15%, the rest of the costs can then be reallocated to the tenants. Utilizing a resident utility billing service (RUBS) will increase the net operating income (NOI) by approximately $132,600 per year and $663,000 over 5 years.
The ancillary income from utility reimbursement can be added to the gross scheduled income (GSI); therefore increasing the net operating income (NOI), which in turn will increase the asset’s overall cash flows.
Mr. Stone recommends that a Ratio Utility Billing System(RUBS) is for situations where the constraints of space and/or construction do not allow a property to be submetered, and can be utilized for almost all utilities including water, wastewater, electric, gas and trash. It requires no initial capital investment and is based on a pre-calculated formula. The formula is determined based on several variables including the number of occupants and square footage of the unit. He also suggests that different variables may be used for different utilities and are typically determined by state and local regulations.
Increasing the NOI will also increase the overall Capitalization Rate (Cap rate). Let’s look at the difference before and after initiating a ratio utility billing service (RUBS) shown in the above diagram.
Property owners are always looking to reduce expenses, and utilities are one of the largest and fastest growing expense categories. The goal of RUBS is to help control the growth of utility expenses. A RUBS program provides investors the opportunity to control rising utility expenses. Once utility expenses are under control, apartment communities operate more efficiently. By making the residents responsible for their own level of consumption, they will conserve. Water consumption is typically reduced by up to 20%, as seen in some studies. RUBS can be initiated in as little as 30 days, providing an instant boost to your bottom line.
Multifamily Utility Company is an industry leader specializing in submetering and allocation of water, gas and electric utilities throughout the United States.
To Learn More about Increasing your Multifamily Cash Flow visit http://www.multifamilyutility.com or contact Tiffany Mittal at 1-800-266-0968 x721 for more information.
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