The Business Case for Utility Submetering & Billing
The purpose of utility submetering and billing is to give multifamily owners and property managers a fair, equitable way to charge residents for their appropriate utility usage.
Submetering benefits multi-tenant property owners and managers by:
- Reducing utility costs
- Increasing cash flow
- Improving cap rates and property values
- Insulating them from rapidly rising energy prices
- Encouraging resident energy conservation.
Submetering benefits residents by:
- Offers residents more control over their total housing costs
- Ensuring they only pay for the utilities they use
- Enabling them to earn financial reward when they conserve.
If you own or operate a master-metered multifamily property, submetering is a smart business and financial investment to make. With AmCoBi as your partner, the decision to implement this cost savings solution is even easier. Here's why:
Financial Analysis of Submetering
It's often easier to understand the financial value of submetering by looking at a specific example. Consider the following multifamily apartment complex:
- 100 units
- Master-metered for water
- Owner pays all utilities
- Annual water cost = $100,000
- Cash outlay (owner) = $100,000
Utility expenses are normally rolled into the rent fee. The owner, however, must estimate each year's utility expenses accurately so that she can adjust rents accordingly. Lease agreements can make it difficult to change rent quickly. If utility prices or resident consumption rise, the owner is financially responsible for the increased costs.
Submetering promotes conservation because the process makes residents financially responsible for their own usage. A 15-35% reduction in utility consumption is common. Let's apply this factor to the analysis below:
- Initial water Costs = $100,000
- Owner installs submeters and initiates tenant billing
- The conservation effect lowers overall consumption by 20%
- Total water costs decrease to $80,000
- Owner takes a common area deduction (CAD) of 10% = $8,000
- Utilities billed to residents = $72,000.
- Cash outlay (owner) = $8,000
Net operating income increases by $92,000.
Subsequent Years - After Submetering
- Yr. 2 increase in cash flow = $92,000
- Yr. 3 increase in cash flow = $92,000
- Yr. 4 increase in cash flow = $92,000
- Yr. 5 increase in cash flow = $92,000
- 5 year total increase in cash flow (after submetering) = $460,000
- Metering investment ($350/unit) = $35,000
- Net increase in cash flow (5 yrs.) = $460,000 - 35,000 = $425,000
Key Submetering Concerns
Many property owners have not pursued a submetering investment for the following reasons:
- Capital costs of the metering equipment
- Concern regarding the payback period
- Concern about resident response
- Administrative time and effort required for monthly utility billing.
The AmCoBi Approach
AmCoBi is addressing these concerns and helping multifamily owners reap the financial rewards of submetering and resident utility billing by:
- Presenting a financial analysis of the costs of submetering and the payback period
- Helping owners and property managers clearly understand the submetering process
- Providing communication and assistance to help residents understand how submetering will serve them
- Offering a comprehensive and affordable utility billing service that requires minimal involvement on behalf of the property management/ownership staff.
Making Rentals More Affordable
Not only can owners significantly increase cash flow and net operating income, submetering gets owners out of the utility business and insulates them from rising utility prices. Moreover, it enables owners to be more competitive with their rents.
Submetered properties have lower common area costs because residents consume less. It's also important to note that submetering offers a way to detect leaks, discover maintenance issues, and save money.
Contact Us Today
If you are interested in learning more about a submetering project for your residential complex, contact us today!