Utility billing is being used by a rising number of business buildings to reduce utility costs and increase NOI. We'll go over everything property owners need to know before getting started in this piece.

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What Is Commercial Utility Billing and How Does It Work?

The growing cost of utilities has put commercial property owners under increasing financial duress. The cost of including public utility services into rent – which may run into the tens of thousands of dollars per year – can quickly deplete net operating profits. As a result, an increasing number of landlords are charging renters for utility consumption in addition to rent.

Unfortunately, many properties are unable to collect specific unit measurements. As a result, there is no means to recoup expenditures.

Utility billing solves the problem by allowing landlords to bill renters for their utility consumption. This allows them to distribute utility costs equitably across business tenants and begin collecting utility charges.

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There are two ways to go about doing this.

Methods of Utility Billing

‍Submetering

Utility submetering helps property owners to equitably distribute utility expenses among tenants by monitoring each unit's actual water, gas, and electricity use.

Install a meter between the property's master meter and each tenant's apartment to do this. This gives reliable statistics for each tenant's utility use. You may also bill tenants for exactly what they eat if you have precise consumption statistics.

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RUBS

The ratio utility billing system, or RUBS, is a billing technique that divides utility expenditures proportionally to renters. Water, gas, electric, garbage, cable, and other services are all weighted differently depending on an industry-accepted formula, and it's used to bill renters for them.

RUBS is ideal for business buildings that are unable to employ submetering due to technical or practical constraints.

A landlord or property manager can use pen and paper or Excel to handle the RUBS approach. However, working with a utility billing business that employs technologies to streamline and improve the process is a more convenient option.

Property managers that need to recoup utility bills fast will benefit from RUBS.

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What Are the Advantages of Billing Commercial Utilities?

Preserve Competitive Prices

One of the most critical variables in determining how competitive your property is on the market is its price per square foot. Incorporating utilities expenses into your lease, on the other hand, raises the price per square foot, making your home less competitive.

Utility billing separates utility bills into a distinct line item, lowering your property's price per square foot.

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Raises NOI and Property Value

Net operating income (NOI) is an important indicator for measuring a property's financial success. It assesses a property's financial performance exclusively on the basis of its operating costs.

Utilities are known for sapping profits as an operational expenditure. Property owners that do not recoup utility bills lose hundreds to tens of thousands of dollars each month.

NOI is significant since it has a direct relationship with property value, as shown by the following formula:

Property Value = NOI / Market Cap Rate

The higher the net operating income, the better the utility cost recovery. And the higher the NOI, the more valuable the property.

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Submeters Provide Long Term Returns

Submeters for commercial properties provide a delayed, but considerable, return. Although the installation involves an initial cost, it is generally rapidly recouped. You can usually recoup the expense in the first few months because the utility recovery is substantially higher for commercial buildings.

The majority of submeters last for at least ten years. That implies you're getting a ten-year return on a single upfront investment.

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Conclusion

Utility billing makes it considerably easier to manage the costs of business buildings. However, property owners would need to develop a billing system that ensures a high degree of expense recovery to obtain the best results.

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