What Is RUBS, and How Does It Change an Apartment Deal's NOI?
RUBS, short for ratio utility billing system, splits a building's master-metered utility bills, such as water, sewer and trash, among residents by a formula like number of occupants or square footage, instead of by individual meters. What residents pay back becomes other income, so net operating income (NOI) rises by the amount recovered, minus the share of vacant units, collection loss and billing costs. It only works where state and local law allow it and the lease discloses it.
RUBS is one of the most common income items in a value-add business plan, and one of the easiest to overstate. This guide explains how it works, what two states' laws require as examples, and how to underwrite it with a made-up example. It is not legal advice; landlord and tenant law is local.
How does RUBS work?
The owner keeps paying the utility company for the whole building. Each month, the bill is divided among occupied units by a formula, and each resident's share is added to their monthly charges. Arizona's statute, for example, lists the allowed methods (A.R.S. 33-1314.01):
- Per tenant (number of occupants)
- By livable square footage
- By type of unit
- By number of water fixtures
- For water and wastewater, by a submetered measure of hot water use
- Any other method that fairly allocates the charges and is described in the rental agreement
Submetering is the alternative: a meter in each unit measures actual use. It costs more to install but bills residents for what they use. Many owners use RUBS where submeters are not practical, such as older buildings with shared plumbing.
Is RUBS legal in your state?
It depends on the state and sometimes the city. Two examples show what rules can look like:
Arizona (A.R.S. 33-1314.01) allows separate charges for gas, water, wastewater, solid waste removal and electricity through submetering or RUBS. The landlord may recover the charges imposed by the provider plus an administrative fee for actual administrative costs only, and the rental agreement must list the services charged separately and the amount of any administrative fee. The agreement must describe the RUBS method, and for existing tenancies the landlord must give at least ninety days' notice before starting.
Oregon (ORS 90.315) allows a landlord to charge for utilities billed to the landlord if a written rental agreement provides for it. The landlord must bill within 30 days of receiving the provider's bill, explain how the charge is allocated among tenants, and include a copy of the provider's bill or offer it for inspection. The charge generally may include only the cost billed by the provider, with a narrow exception for cable, satellite and internet services.
Other states and cities have their own rules, and some limit or regulate allocated billing more strictly. In places with rent regulation, check how utility charges are treated. Have a local attorney review your lease language before you start.
How does RUBS change NOI? A made-up example
A 40-unit building pays $72,000 a year for water, sewer and trash, which is $150 per unit per month ($72,000 / 40 / 12). The sponsor plans to bill these back through RUBS. All numbers are made up.
| Line | Amount |
|---|---|
| Annual water, sewer and trash cost | $72,000 |
| Share billable to occupied units (95% occupancy) | $68,400 |
| Less collection loss (3% of billed) | -$2,052 |
| Collected from residents | $66,348 |
| Less billing service cost ($3 per unit per month) | -$1,440 |
| Net increase in NOI | $64,908 |
| Value of that NOI at a 6.0% cap rate | $1,081,800 |
Check the math: $72,000 x 95% = $68,400; 3% of that is $2,052; $68,400 - $2,052 = $66,348; 40 units x $3 x 12 = $1,440; $66,348 - $1,440 = $64,908; and $64,908 / 0.06 = $1,081,800.
That last line is why RUBS shows up in so many business plans, and why investors scrutinize it. Small changes in the inputs move value a lot.
What can go wrong when you underwrite RUBS?
- Day one income. Existing leases may not allow RUBS, and some states require notice before starting. Phase it in as leases renew.
- Total cost to the resident. Renters compare total monthly cost. If nearby buildings include water in rent, a new RUBS charge may mean lower base rent or slower rent growth. Check whether your rent comps include utilities.
- Double counting. Do not assume full market rent increases and full RUBS income at the same time unless comps support both.
- Vacancy and bad debt. The owner pays the vacant units' share, and not every resident pays every charge. See economic vs. physical occupancy.
- Legal limits. Charges above actual cost, missing lease language or late bills can create refunds or claims.
- Lender view. Ask your lender how it will treat RUBS income that has not been collected yet when it sizes the loan.
How do investors read RUBS in a deal?
Investors look at the T-12 to see whether RUBS already exists, then at your plan to see how much new income you assume and when. Show:
- Current utility costs and any current reimbursements, from the rent roll and T-12
- The allocation method and the lease language that allows it
- The ramp: how many leases renew each month and when RUBS starts for each
- Net income after vacancy, collection loss and billing costs
- The value effect at your cap rate
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from their friends and followers under Rule 506(b) or 506(c). It does not set your business plan or check your lease terms: whether RUBS is allowed and how much it brings in are for you, your property manager and a local attorney. DoorRaise handles the raise: it prepares the standard offering documents, forms the LLC, files Form D and state notices, and verifies accredited investors for 506(c). Investors fund by wire into escrow at Enterprise Bank & Trust, an FDIC-insured bank. Fees are $1,500 to set up (non-refundable), $5,000 at closing (only if the deal closes) and $3,500 a year, with no percentage of the raise.
Raise your apartment deal from the people who already follow you.
DoorRaise is built for apartment buildings with 5 or more units: one link for the deal, escrow until closing and a standard fee card.
Ready to raise? Create your free sponsor page or see pricing.
FAQ
What does RUBS stand for?
Ratio utility billing system. It allocates a building's utility bill among residents by a formula instead of by meters.
Is RUBS the same as submetering?
No. Submetering measures each unit's use. RUBS estimates each unit's share with a formula such as occupants or square footage.
Can I charge a fee for running RUBS?
Some states allow an administrative fee. Arizona, for example, allows one for actual administrative costs only, and the lease must state the amount.
Can I start RUBS for current residents right away?
Often not. Leases may not allow it, and some states require notice; Arizona requires at least ninety days for existing tenancies. Plan to phase it in.
Does RUBS always increase NOI?
Only by what is actually collected, net of the vacant units' share, unpaid charges and billing costs. If it slows rent growth, the net gain is smaller.
Next step: read how to calculate break-even occupancy to see how much your deal relies on other income like RUBS.
Sources
This article is general information, not legal, tax or investment advice. Talk to a local attorney about your leases and utility billing. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.