Hello All,
Does anybody have knowledge of the process of charging utilities to tenants via “pro rata” billing? We have been charging electricity to tenants as each unit is metered. We pay for water, trash, and sewer. Since COVID these utilities have skyrocketed, and we are considering charging these to the tenants. Does anybody recommend a particular software system to help with this? Does anybody understand the process? Any help is appreciated.
Thank you,
Mike
I’ve done pro rata billing short term before having meters installed. You’d typically divide the total bill based on factors like unit size or number of occupants. Some landlords go by square footage, while others split it evenly.
For software, a few popular options are Rent Manager, RUBS (Ratio Utility Billing System) providers, or even Buildium, they can help automate the calculations and billing. Just be sure to check local laws, as some areas have regulations on how utilities can be allocated.
If your goal is just to recover costs, a simple spreadsheet might work too. But if you want a streamlined system, a billing platform could save you time. Have you looked into any software yet, or just starting the search? Mind sharing with us your location? Some states are super strict about this kind of thing so it definitely matters where you are.
Hello,
Thank you for your response. The park is in Oregon. I am doing this on behalf of my mother, who owns the park. Utility expenses keep going up and she has been paying everything, minus electricity. Her space rents are also under market. We are trying to come up with the easiest method for her to navigate. She is 77 years old.
Again, thank you.
Many of the property management software packages can do these calculations including Rent Manager. For a simple ratio billing system, a spreadsheet works good enough. The legality of this is dictated by each state, so you should check the state ordinances first. Usually the exact parameters of how you can calculate charges is dictated in these ordinances.
An issue with ratio billing is that although you pass the expense to the tenant, no single tenant can control their expense. Thus there is no incentive to lower the utility usage. It is much better to go with meters so everyone can pay their fair share and can be in control of their usage. When they are in control, they are likely to use less which saves them money, and ultimately, helps them in successfully paying your lot rents.
When you consider how much a tenant can afford to pay for housing you should think of all the expenses. For example, if their housing budget is $1,000 which includes $800 in rent and $200 in utilities, that tenant is stretched if rent goes beyond $800. If you can reduce their utility from $200 to $100, they can now afford $900 in rent. Our experience with water submetering is that tenants will consume 30 to 50% less after metering, but there is little to no reduction with RUBS.
We currently have a property in Kentucky using RUBS and we charge based on the number of people in the home. A particular tenant pays a ratio of # of occupants in their home divided by the number of occupants in the community. Again, there is no incentive for any tenant to limit consumption. Also, we get tenants complaining that their neighbor has a “guest” so they should be charged more. After several years, we decided to meter and 50% of the meters are now in place.
Hi Mike, we’ve used a pro-rata billing system for utilities with software like Rentec Direct and Buildium, which simplifies dividing costs based on unit size or occupancy. It’s a good way to manage rising utility costs while ensuring fair distribution among tenants.
MarkJone,
Yes, thee is software to divide the costs. The problem though is that there is no incentive to conserve. For example if you knew you have to pay 2% of the park’s utility bill, you realize that you have little control over consumption. You can actually use 0 gallons of water, but if you neighbors are water hogs, you still pay 2% of the aggregate of their usage. When you put meters, you will truly see consumption drop.
You may think none of this matters because the tenants pay for it anyway, but by reducing their utility bill, you improve their changes of making rent payments on time.