RUBS in Multifamily Real Estate: Is It Worth It?

Ratio Utility Billing System (RUBS) is one of those terms that everyone talks about, but no one really gives you a good answer to what it is exactly. It's one of those things that you hear when you're starting out where you think it gives you a huge competitive advantage. People new to the industry often hear someone talking about RUBS and they think this in itself automatically qualifies them as knowing what they're doing. It's a buzz word.

Here's what it actually is.

Say your entire utility bill is $100,000. You can then bill the tenants a portion of this. It loses a lot of power because cities often limit the percentage amount you can bill back to tenants. The limit is usually 75%. The city says that this is because the property itself uses much of these utilities in the leasing office, lights, water for landscaping, etc.

Where is the value in it?

If RUBS is already implemented, and the tenants are being charged say 65%, you can increase this to 75% or the city limit. This increase in income is accounted for in other income.

If there is no RUBS implemented, which is increasingly rare, the tenants may or may not be paying a lower number than what you can RUB back. For instance, they may be paying $60,000 where if you had RUBS, you could charge $75,000.

Conclusion:

It's worth exploring if it does add other income to your property. If it adds $10,000 a year to NOI, that's $200,000 in added value at a 5 cap.