Who pays the water bill decides more than it looks like it does

In an older multifamily building the water is often on a single master meter and the owner pays all of it. Electricity is more commonly individually metered, but not always. The consequence is that every rate increase, every running toilet and every long shower lands on the owner's expense line, and none of it can be passed through without a mechanism to do so. The two mechanisms are submetering — installing individual meters and billing actual consumption — and a ratio utility billing system, which allocates the master bill among units by a formula based on occupancy or square footage. Submetering is more accurate and costs capital. Allocation is cheaper and is the one with regulatory strings: how it can be billed, what can be added as an administrative fee, and what has to be disclosed to the tenant are governed, and the rules differ by state and sometimes by municipality. For a buyer the arithmetic is direct. Moving a recurring expense off the owner's ledger raises net operating income, and at a market cap rate that is a multiple of the annual saving in value. It is one of the few reliable value-add levers that does not depend on rents moving. Two cautions. Implementing it mid-lease usually is not possible; it rolls in as leases renew, so the benefit phases in. And tenants experience it as a rent increase whatever it is called, which belongs in the renewal and turnover assumptions. This article is general information, not legal, tax or financial advice. Rules change and every deal is different — check your own case with a licensed professional. Alberto Zaltzberg — Adonait · adonait.com