# Utility Expense Recovery: How Water Billing Raises NOI and Property Value

Source: https://submeter.com/utility-expense-recovery/
Publisher: National Exemption Service (NES), https://submeter.com. Last reviewed September 2026.

How multifamily owners turn water and sewer costs into NOI: RUBS vs submeters, the cap rate math, a free calculator and real NES property numbers.

## What is utility expense recovery, and how does it raise property value?
Utility expense recovery means billing residents for the water, sewer and other utilities the owner pays on a master meter, either from a submeter in each unit or by a formula split called RUBS. Every dollar recovered lowers net operating expenses, so net operating income goes up by the same amount. Divide the yearly NOI gain by your cap rate to see the value it supports: $100,000 a year at a 5.75% cap rate is about $1.74 million. Submeters usually recover more than RUBS because residents pay for what they use, and they use less. In the EPA-funded national study, submetered units used 15.3% less water, while RUBS showed no measurable change.

Most owners know their water bill is high. Fewer have put a value on it. On a master-metered property the water and sewer bill is a cost the owner carries for every gallon used in every apartment, and it rises every year whether rents do or not. Recovering it is one of the few value-add moves that needs no renovation and no change to base rent.
This guide is for regional property managers and asset managers looking at recovery across a group of properties. There is a calculator partway down if you want to run your own numbers first.
## Why water and sewer are the costs to recover first
Utilities are a real share of what it costs to run an apartment community. The National Apartment Association's [Income/Expense IQ report for 2024](https://naahq.org/news/momentum-management-navigating-elevated-costs-constrained-operating-environment) put total utilities at $1,304 per unit, about 15% of the $8,657 in operating expenses per unit. Water and sewer was the utility line that grew, up 5.1% for the year while total utilities fell.
That growth is not a one-year blip. [Bluefield Research's rate index](https://www.wateronline.com/doc/national-water-and-sewer-bills-rise-outpacing-inflation-as-utilities-face-rising-cost-pressures-0001) of 50 US cities found household water and sewer bills rose 5.1% in 2025 to a five-year high, a 24.2% increase over five years. The Bureau of Labor Statistics consumer price index for [water and sewerage maintenance](https://data.bls.gov/timeseries/CUUR0000SEHG01) was up 4.7% in the 12 months to September 2026. Utilities are replacing old pipes and treatment plants, and that work is paid for through rates.
On a master-metered property every one of those increases lands on the owner. On a property that bills residents, most of it passes through, and the gap between the two grows every year. A property absorbing $180,000 a year in water and sewer today is looking at roughly $220,000 in four years at 5% a year, with no change in how much water anyone uses.

## How utility recovery raises NOI and property value: the math
Recovered utility cost reduces net operating expense, which raises NOI by the same amount. Property value at a given cap rate is NOI divided by that cap rate. So the value a recovery program supports is the yearly NOI gain divided by the cap rate.
[Northmarq's 2026 midyear report](https://www.northmarq.com/insights/research/2026-midyear-national-multifamily-report) put multifamily cap rates at an average of 5.75% in the first half of 2026. At that rate, each dollar of yearly recovery supports about $17.39 of value. Your own underwriting rate is the one to use, and the lower it is, the more each dollar is worth.
| Scenario | Owner's net water cost | Yearly NOI gain | Value supported |
| --- | --- | --- | --- |
| Owner pays the whole bill | $180,000 | $0 | $0 |
| RUBS | $36,000 | $144,000 | $2.50M |
| Submeters | $15,300 | $164,700 | $2.86M |
The submeter scenario does better for two reasons. It collects a higher share of the bill, and the bill itself gets smaller because residents use less water once they see their own usage. The 80% and 90% recovery figures are assumptions, and cautious ones. At the Texas and New Mexico properties further down, the owner's own cost fell 95% and 99%. NES builds the real numbers from each property's own bills before anything is installed.

## Utility recovery calculator: NOI and property value
Enter your unit count and what you pay for water and sewer per unit each month. If a property already bills residents some of it, set how much it recovers today. Use the cap rate your team underwrites at.

## RUBS vs submetering: which recovers more
Both methods move the bill to residents. They do not recover the same amount, and they do not have the same effect on how much water the property buys.
### What the national study found
The best data on this is still the 2004 [National Multiple Family Submetering and Allocation Billing Program Study](https://www.ebmud.com/water/conservation-and-rebates/water-conservation-publications/multi-family-submetering-billing-allocation-study), funded by the EPA, the National Apartment Association, the National Multi Housing Council and a group of water utilities. Submetered properties used 15.3% less water than comparable properties where the owner paid, a drop of 21.8 gallons per unit per day. Properties billing by RUBS showed a change of 0.7%, which the researchers found was not statistically different from zero.
Under RUBS a resident's share is set by a formula, usually occupants and square footage, so a shorter shower saves them almost nothing. With a meter, it shows up on their next bill. The EPA's WaterSense program still cites the study's finding that submetered residents use about 15% less water.
### Why RUBS recovers less
There is no solid public benchmark for how much of the bill RUBS recovers. Billing companies publish figures from about 60% to 90%, mostly because they measure different things. The reasons it trails meters are easier to pin down. On a square footage split, a vacant unit keeps its share of the bill and nobody pays it. Residents have no reason to use less, so the bill does not shrink. And some states and cities limit or ban formula billing for some utilities.
At one 337-unit NES community, meters went in as leases renewed, so for a while both groups ran side by side. The 168 submetered units averaged 3,868 gallons a month, 34% less than the 5,846 gallons used by the 169 units not yet metered. Their average bill was $54.22 against $84.72, about $30 a unit lower. Across all 337 units, that gap is worth roughly $123,000 a year.
| Factor | RUBS | Submeters |
| --- | --- | --- |
| Share of the bill recovered | Less. A vacant unit's share stays with the owner | More. Owner's cost fell 95% and 99% at two NES properties |
| Effect on water use | No measurable drop in the national study | 15.3% less in the national study |
| Upfront cost | None | $150 to $300 per unit installed, financing available |
| Time to first recovery | First billing cycle | After install, often phased with lease renewals |
| Leak detection | None at the unit level | Daily reads flag continuous flow by unit |
| Where it can be used | Restricted or banned for some utilities in some states and cities | Allowed more widely, with registration rules in some states |
Many portfolios use both. RUBS starts recovery right away at properties where meters do not fit the plumbing or the budget this year, and those properties move to submeters in a later capital cycle. See [submetering vs RUBS](https://submeter.com/submetering-vs-rubs/) for the full comparison, or model one against the other with the [RUBS vs submetering calculator](https://submeter.com/rubs-vs-submetering-calculator/).

## Utility recovery results at three NES properties
These come from NES property records. Client names are withheld. Your results depend on local rates, unit mix and how much water the property was losing before.
| Property | Before | After |
| --- | --- | --- |
| 337-unit apartment community | Units not yet metered: 5,846 gallons and $84.72 a month each | Submetered units: 3,868 gallons and $54.22 a month each, 34% less water |
| 140-home community, New Mexico | Owner paid $26,400 a year in water and sewer | Owner's own cost: $264 a year |
| 130-home park, Texas | $120,000 a year master water and sewer bill | Park's own cost fell to $6,600 a year, with more than $113,000 billed to residents |
More detail on each one is on the [results and case studies](https://submeter.com/results-case-studies/) page.
Get a recovery model for your portfolio. Send 12 months of master-meter bills and unit counts for the properties you are looking at. A specialist replies within one business day, and the full model, with projected recovery and payback by property, follows within five business days.

## How utility recovery shows up in underwriting and valuation
Recovered utility cost only adds value if the next lender or buyer gives you credit for it. A few things decide whether they do.
### It needs a track record
Lenders underwrite from operating history. [Fannie Mae's Multifamily Selling and Servicing Guide](https://mfguide.fanniemae.com/fnmf-pdf/download/7531) lists utility reimbursements among the other income that can count toward effective gross income, as long as the income is stable, common in the market, and supported by prior years. For RUBS income in particular, lenders are told to [check it against the appraisal or comparable properties](https://mfguide.fanniemae.com/fnmf-pdf/download/22181). In practice a program started a few months before a sale or refinance may get little credit. Starting it a year or more ahead puts a full year of collections on the trailing 12.
### It needs to be clean on the T-12
Buyers look for utility reimbursement income that tracks the utility expense line month by month. Large swings, months with no billing during a provider change, or reimbursements booked in lumps all invite a haircut. Ask for a monthly recovery report by property: the utility invoice, what was billed to residents, and what was collected.
### The provider's fee needs to be predictable
A billing fee that is a percentage of what gets recovered grows every time the water utility raises rates, which means part of your NOI gain goes with it. A flat per-unit rate is easier to model and budget the same way every year. That is how NES prices portfolio work.
### It has to be legal where the property is
A buyer's diligence team will ask whether the billing follows state and local rules. Recovery built on a method a city does not allow, or on fees a state caps, is a liability rather than income. More on that below.

## Why recovery rates slip after launch
A program that recovered 90% in its first year can drift to 75% without anyone noticing, because the property still sends bills every month. These are the usual causes. Each one is fixable once someone is watching the recovery rate.
- Vacant units. Water used in a vacant unit, or a vacant unit's share of a RUBS split, stays with the owner. Track it separately so it can be managed instead of absorbed.
- Leaks. The EPA estimates [9% of homes have leaks that waste 50 gallons or more a day](https://www.epa.gov/watersense/fix-leak-week), and the average household loses more than 9,300 gallons a year to leaks. Every gallon lost in a vacant unit or a common line is a gallon nobody pays for. Daily reads catch continuous flow. See [MyReads leak detection](https://submeter.com/myreads-leak-detection/).
- Missing reads. When a transmitter stops reporting and nobody fixes it, that unit is either billed on an estimate or not billed at all. Both cost money.
- Rate changes not passed through. When the city raises rates, resident billing has to change with it. A lag of a few months is lost recovery.
- Unpaid final bills. Residents who move out owing a utility balance. Without [collections](https://submeter.com/collections/), that becomes bad debt.
- Common areas. Pools, irrigation, clubhouses and laundry stay with the owner. They should, but they should also be measured, because a broken irrigation line looks like normal usage on a master bill.
The single most useful number to watch is the recovery rate by property each month: billed and collected from residents, divided by the utility invoice. If it moves, something changed.

## Rolling out utility recovery across a portfolio
Asset managers usually ask where to start. This order works for most regional portfolios.
1. Rank properties by water and sewer cost per unit. The highest cost per unit pays back fastest. High-rate cities and properties with irrigation tend to top the list.
2. Check the rules for each address. Some states and cities limit or ban RUBS, cap fees, or require registration before billing. Texas requires registration with the Public Utility Commission. North Carolina requires a certificate from its Utilities Commission first. This decides which method each property can use.
3. Survey the plumbing. One water line per unit in an accessible closet means a quick meter install. Several risers per unit can make RUBS the better answer for that building.
4. Time it with lease renewals. New billing terms usually start at renewal, which is how the 337-unit community above ran its rollout. Plan for recovery to ramp up over a lease cycle, not all at once.
5. Tell residents early. A clear notice, a sample bill and a phone number that a real person answers in English and Spanish cut down on disputes in the first few months.
6. Watch the recovery rate monthly. By property, from the first bill. That is what will end up on the trailing 12.
NES phases portfolio rollouts property by property on the schedule your asset team sets, so recovery turns on at each property as it finishes. Installations average $150 to $300 per unit, and most properties earn back the install cost in 12 to 18 months. Part of that is the ramp: billing starts at each lease renewal, so it takes most of a year before every unit is paying. Properties with high water and sewer bills get there faster. NES also offers financing so the meters do not have to be paid for up front. See [submetering for large portfolios](https://submeter.com/large-portfolios/) for how the account side works.

## Utility billing compliance: check before you count the income
What an owner can bill back depends on the state, the city and sometimes the utility, and the answer is often different for water, gas and electric. Some states allow submetering but restrict RUBS. Some cap or ban admin and late fees. A few cities do not allow billing back at all. NES never bills residents more than the property pays the utility, and common-area use stays with the owner.
NES's in-house compliance team checks the rules for each address before quoting and keeps a seven-year bill archive on every account. For the details by state, see [is submetering legal](https://submeter.com/is-submetering-legal/) and [RUBS for multifamily real estate](https://submeter.com/rubs-for-multifamily-real-estate/). If you are putting recovery out to bid across a portfolio, the free [utility billing RFP template](https://submeter.com/utility-billing-rfp-template/) has the compliance questions to ask every provider. This guide is general information, not legal, tax or investment advice.

## Questions
**What is a good utility recovery rate for multifamily?**
There is no reliable industry benchmark, so measure your own. Submetering recovers more than RUBS: at two NES properties the owner's own water and sewer cost fell 95% and 99%. Published RUBS estimates run from about 60% to 90%. What is not recovered is common-area use, vacant units, and anything lost to leaks, missing reads or unpaid final bills. Track it monthly by property: billed and collected from residents divided by the utility invoice.

**Does utility reimbursement income count toward NOI?**
Yes. You can book it as reimbursement income or as a lower utility expense. Either way, NOI goes up by the amount recovered. Fannie Mae's multifamily guide lets lenders count utility reimbursements as other income when it is stable and supported by prior years, so a full year of history helps at sale or refinance.

**How much value does utility recovery add?**
Divide the yearly NOI gain by your cap rate. At a 5.75% cap rate, each $1 a year of recovery supports about $17 of value, so $100,000 a year is roughly $1.74 million. A 250-unit property paying $60 per unit per month in water and sewer could support about $2.5 million with RUBS or $2.9 million with submeters at that cap rate, using the assumptions on this page.

**Is RUBS or submetering better for property value?**
Submetering usually adds more, because it recovers a higher share of the bill and residents use less water once they pay for their own. RUBS adds value faster, with no install cost. Many portfolios start with RUBS where it is allowed and move to submeters in a later capital cycle.

**How long before recovery shows up in a valuation?**
Billing usually starts at lease renewal, so recovery ramps up over about a year. Lenders and buyers look at trailing operating history, so plan for at least 12 months of clean recovery before a sale or refinance.

**Can residents be charged more than the property pays?**
Not by NES. Residents are billed for their measured use, or their formula share under RUBS, and never more than the property's master-meter cost for that service. Common-area water stays with the owner. Many states also put this limit in law.