What is a Utility Recovery Program?

In 2020, the multifamily industry faced new challenges and costs. As we were ordered to stay home, utility consumption increased dramatically. Combined with rate hikes early in the year, this resulted in utility expenses that were much larger than many had budgeted for. There are two examples why residents should pay their own utility expensise. The first is that waste occurs when we use services we don’t pay for. Lower AC settings, longer showers, lights left on are all symptoms of not understanding the true cost of service. When people pay the bill for their consumption, they naturally tend to conserve.

It’s not uncommon to see a reduction in utility bills 20% once a utility recovery program goes into effect. The second case for charging residents for their utilities is that it reduces the owners liability and provides insulation against fluctuating usage and rates, and it gives owners more control over their pricing matrix. If residents are paying utilities and the vacancy rate creeps up, it’s easier to reduce rental rates or provide an incentive without feeling as much of a pinch. Utility billing increases NOI as much as $40-$120 per unit per month, and cap rate as a result. A property for sale with a recovery program will price out higher than a comparable without utility recovery.