JF1451: Save Money On Your Income Property Utilities with John Tanner
If you own income property, especially larger buildings with a lot of units, you likely have some room for improvement with your utilities. John is here today to discuss this with us, as he specializes in helping his clients save the most amount of money possible. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
John Tanner Real Estate Background:
- Director of Sales Marketing for My Utility Cabinet
- Specializes in utilities and invoice management for commercial property owner/operators
- Based in Cincinnati, OH
- Say hi to him at https://myutilitycabinet.com/
- Best Ever Book: Steve Jobs
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, John Tanner. How are you doing, John?
John Tanner: Good, Joe. How are you? Thanks for having me on.
Joe Fairless: I am doing well, and it’s my pleasure. A little bit about John – he is the director of Sales Marketing for My Utility Cabinet. They specialize in utilities and invoice management for commercial property owners and operators. Based in Cincinnati, Ohio, and the website is myutilitycabinet.com, which is also in the show notes page.
With that being said, John, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
John Tanner: Yeah, absolutely. MUC and its cloud-based platform were originally created for construction and heavy industrial companies, because many of these companies had thousands of different locations and were constantly acquiring new ones, but didn’t have a uniform way of organizing or tracking the data within those bills.
Since 2011 we have evolved and now cater to basically any industry that uses energy and is looking for a better way to track it and manage it.
Over the last few years, we’ve been able to acquire clients ranging from floral shops, to breweries, and now even commercial and residential real estate companies.
One of our particular commercial real estate clients used our brilliant services to determine fair ways to build tenant allocations that didn’t have each unit individually metered. So not only did we create a fair and transparent billing system, but we also were able to analyze the rates for all of those clients’ location and reduce the utility spend by more than 15%.
Joe Fairless: Okay, so you all look at the energy that’s being used at a commercial property, and then what do you do with it?
John Tanner: We analyze the data to see if there’s any discrepancies, billing errors; we compare it to other locations that are the same size and should use the same amount of energy to see if you’re on the right rate, or if there’s something going on where you’re using too much energy and you shouldn’t be.
We dug into the numbers that are past the bills, so not just the dollar signs there, but the actual usage numbers.
Joe Fairless: Got it. So you look at a subject property and you compare subject property to other similar properties in that area, and you look at usage and determine if they’re on par for energy usage.
John Tanner: Yeah, and we also manage and process their billing as well. All of their bills are sent to our office and we process them, so it’s one easy lump sum payment, as opposed to you have a landlord sitting down and cutting open 20, 30, 40 different bills. We just make it simple for them, and it’s one easy payment.
Joe Fairless: Got it. And as far as bills go, you’re referring to the electric and water, or are you referring to cable…?
John Tanner: It can be all those. It can be just electric, gas, water, or we can add in television service, your phone service – anything that’s technically considered a utility or a bill, we can take care of it for you.
Joe Fairless: And then you consolidate the monthly bills and the owner writes one check to you, and then you all pay those bills.
John Tanner: Yeah, so we bill them one time. On our online database we give users logins and all of that, and they’re able to see all of their information on this site, and our financials are pushed to them, whether they use QuickBooks, or any other accounting software.
Joe Fairless: What about if bills are the first of the month versus the 28th of the month?
John Tanner: That’s something that a lot of property owners have voiced concerns, with the cashflow optimization, and we’re able to work with the utility companies… Say you have a mortgage that’s due on the first. We work with the utility company on our client’s behalf to try to stagger that out. If their mortgage is due the first and they wanted to pay something in the middle of the month, to have more cashflow optimization, we’d be able to do that for them.
Joe Fairless: As far as the energy usage, can you maybe give a case study or two as it relates to commercial properties?
John Tanner: Yeah, I have an example right here… Our most recent project with one of the clients directly relates to one of the articles you wrote back in April, the 27 ways to add value to apartment communities.
Joe Fairless: Yup.
John Tanner: Number seven on that is the ratio utility billing system (RUBS), but in our experience, sub-metering is basically RUBS on steroids. We ran an analysis of master metering with sub-meters versus having every unit be metered [unintelligible [00:07:47].20] building in Cincinnati, and after the initial year we projected 37% savings in utilities in the building, successfully lowering the NOI.
Joe Fairless: So what were the two variables you were comparing?
John Tanner: The two variables would have been — having a master meter for those 29 units, sub-metering that out, so they’re still being tracked, versus having a meter for each of those units.
Joe Fairless: Got it. So you’re making the distinction between sub-metering and master metering, which obviously makes sense, but then… Was there a third that you mentioned that you’re comparing?
John Tanner: No, there was really only two.
Joe Fairless: Okay, sub-meter versus master meter. Got it. And will you define both of those, just in case someone’s not aware of what those two things mean?
John Tanner: Yeah, so sub-metering would be — for instance, in this building we have 29 different units, so you’d have one master meter where all of the energy goes through, and running off of that master meter would be sub-meters, each of which would be going to a unit and you’d be able to tell exactly what that unit is using.
A regular meter is you would see driving by the apartment building – they might just have 10, 15, 20 of these master meters that are on each building, that are on a building, that go towards a unit… But for those units you have to pay a meter fee, for each and every one of those meters; it’s around $36. If you sub-meter, you pay that one meter fee, and then you still get the information for the rest of the units in the building.
Joe Fairless: So it’s cost-effective to sub-meter.
John Tanner: Yes, it’s cost-effective to sub-meter. You’re also putting some accountability on your tenants, so they have more understanding of the energy they use; it’s being split fairly.
Joe Fairless: Have you come across — and this gets more into operations, so it might be a little outside of your scope… But I’m just curious – have you come across an owner who attempts to sub-meter, but lo and behold, the residents at the property consider it a rent increase, because it’s more money out of their pocket if they’re now paying for those utilities, and then they have to back-track and discontinue the sub-metering?
John Tanner: No, we haven’t come across that, but [unintelligible [00:10:03].18] that we’re doing now is for a building that’s being gutted and newly-developed… With sub-metering, it would just basically reduce usage, and it wouldn’t particularly go straight back to the tenants and they would have to be paying more.
Joe Fairless: If it’s master-metered, then the residents still could pay, but it wouldn’t be as accurate, right?
John Tanner: Yeah, there’s a couple different instances you would have… There could just be one meter on the building, and you’re having to go in and use RUBS [unintelligible [00:10:32].15] square footage and all of that, and it would be fair to an extent, but you wouldn’t know exactly what unit was using; you would just know the exact building usage, and you’d be dividing that up.
Regularly, if you didn’t have a meter on each unit, you would also be able to tell what they were using, but you would have to pay those meter fees as well, as a tenant would. If you put up the upfront costs to install sub-meters, you’re not incurring that cost anymore, and the tenant’s not incurring that cost anymore. So that $36/month that they’re paying on their utility bill – they wouldn’t be paying that anymore.
Joe Fairless: What are some objections that you come across with owners, and after telling them “Hey, this is how it works”, then they say “Okay, cool. I’m in.”
John Tanner: There aren’t much objections, just because with sub-metering you get instant feedback on those units, so you’re able to tell… Say there’s a leak in an apartment, say there’s an anomaly in the billing system – you can set it up to where you’re able to figure this out. In 15-minute increments the data can be sent to you… So there haven’t been many objections there.
Joe Fairless: So everyone you talk to signs up… Every single client or potential customer…?
John Tanner: Well, for sub-metering this is a fairly new thing we’re rolling out, but everyone that we’ve had has at least been open to it, yes.
Joe Fairless: Okay, the ones who are open to it but then have not signed up yet, what is a reservation?
John Tanner: Just the upfront costs. There’s a lot of people that know about it but don’t know the exact cost of it, so we perform the ROI for them to be able to figure out how well the payback would be and the benefits of doing it, and the benefits usually outweigh the cons in this situation.
Joe Fairless: Let’s go through a hypothetical scenario – or if you have a specific example, that works, too. What are some typical upfront costs?
John Tanner: I don’t have exact numbers in front of me right now, and honestly, it just depends on the size of the building.
Joe Fairless: What’s the range for installation on installing sub-meters?
John Tanner: I don’t have those numbers in front of me right now. We don’t install it ourselves; we kind of work as a broker with [unintelligible [00:12:41].04] company, so we try to find the best deal out there for our clients.
Joe Fairless: So you set up the owner with a company that then installs the sub-meters, and you all act as the go-between.
John Tanner: Yes, absolutely. We’re talking with people all over the country, trying to find the best ways to do it, the best pricing, what the going rate is in certain states, and to make sure everything is compliant.
Joe Fairless: So what are the ways that you all make money?
John Tanner: Ways that we make money are processing invoices for our clients. We don’t take any of our clients’ savings, like I’d mentioned earlier, talking about one of our clients. We projected 37% savings to them in this building, and we don’t take any of that cost. Kind of an added value for them.
There’s a lot of companies out there that will come along and say “Hey, we’ll save you this much, but we take 50% for the first however many years.” All of your savings are your own. For us, we just require a payment for a user fee for our website, and then depending on the amount of bills that you have, it can range between $2,50 to $5 on how many bills that we process for you.
Joe Fairless: Got it. Okay, it makes sense. And you mentioned that’s the way you all make money on the processing side… What about the tracking data and identifying utility usage relative to comps and where there can be efficiencies?
John Tanner: Those are included in our flat rate. The same thing for having a monthly user fee – that’s all included in our flat rate. All of the information is readily available on myutilitycabinet.com. We kind of just are able to analyze that and paint pictures there that make sense to people. We have different graphs, pie charts, whatever… There’s many different ways that we’re able to come across that data and interpret it differently for different people, different visualizations.
Joe Fairless: Where are the sensors for the utility usage, so you can determine if there’s a leak or not?
John Tanner: That would be in the sub-meter itself. The meter would be the sensor. So if it’s delivering us data every 15 minutes and we have a trend, and that trend skyrockets, we’d be able to tell “Hey, what’s going on right here right now? Why is it so much higher than it has been in previous months?” That would be how we would be able to track that.
Joe Fairless: So it can be a warning detector if you’re doing sub-metering, versus if you’re doing the RUBS, where you’re billing back based on square footage, or number of residents, or something like that. There’s not that proactive nature that you’d get with RUBS that you do get with sub-metering.
John Tanner: Yeah, absolutely. If you’re doing RUBS, you might not be able to figure this out for, say, a couple months; you don’t realize that your bills are getting a little bit higher, a little bit higher… That’s why we track usage as well, because sometimes prices change, rates change… Being able to track usage gives you direct data and trends of what has been the operational mean or average and what it should be, and things stand out when they’re not.
Joe Fairless: You mentioned on sub-metering you all perform a return on investment assessment to basically show when you get your money back, after a certain period of time, when you invest in sub-metering. What’s a typical timeframe that you see, and what’s the low end and high end, just to understand the range of time?
John Tanner: Honestly, it just depends on the size of the building. If you perform this on a larger building, with hundreds of different units [unintelligible [00:16:30].26] quicker, just because you’re not paying that extra $36/month.
So usually within the first two years – I would assume that’s around the average, but it can span depending on the project, depending on the amount of units, or if you’re dealing with an office space… There’s a lot of different variables that go into it.
Joe Fairless: Is units the primary variable, and then there’s other secondary variables? Or is there something in addition to units that would be a major variable to consider?
John Tanner: Units would be the main variable there. Say you have a building and you only have five units in it; it wouldn’t make sense at that point to sub-meter, just because there’s a cut-off. There’s a start where it make sense to do it, where you’re saving money right off the get-go.
Joe Fairless: Approximately what’s that cut-off on average? You said five unit not so much… What would be?
John Tanner: If you had (I think it’s) seven or more units, it would make sense.
Joe Fairless: Okay… Assuming other variables are friendly in that scenario.
John Tanner: Yeah, exactly. You might come across a building that already has some meters set up, or something where it wouldn’t make sense to retrofit, go in there and dig all that out and start from scratch. That’s why this project that we’re working on is unique, because we already got in the building and we’re starting it from scratch… We’re being able to hit the ground running.
Joe Fairless: Yeah… Super-interesting. I’m really grateful that you’re getting into details with us. Based on your experience within this industry – so it doesn’t have to be real estate investing advice, but just within this industry based on your experience, what is your best advice ever for real estate investors?
John Tanner: My best advice ever for real estate investors would be to gather all the information and data you can before making a decision. And just because someone else did something that way or you’ve heard that’s the way it’s usually done doesn’t mean it’s the best way for your specific property or your specific operation. So make decisions based on tangible information.
What we like to say here at MUC is you can’t manage what you don’t measure.
Joe Fairless: Amen to that, that’s for darn sure. I certainly take that philosophy in my business. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round? Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: What’s the best ever book you’ve most recently read?
John Tanner: The Steve Jobs biography by Walter Isaacson, because it describes how an incredible personal work ethic, as well as regular self-reflection and re-evaluation of one’s choices can create success. This is applicable in real estate, because investors should constantly review their situation in order to make the right decision at the right times.
Joe Fairless: And I said “best ever book you’ve most recently read”, which is a little redundant, so I apologize for that… I should’ve said “best ever book you’ve recently read” — something like that, I don’t know… It’s a new question and I’m trying to add in the “recently” part, so I’ve gotta figure out how to word that.
What’s a favorite case study that you haven’t talked about that you’d like to talk about?
John Tanner: We have a case study from one of our different clients – due to some confidentiality agreements we aren’t able to tell you exactly who this client is… But this is something we offer in our ancillary services; in this case it’s tax code analysis. We were recently able recover over $250,000 in erroneously paid taxes, which neither the client nor the utility were aware, that they shouldn’t have been paying.
In addition to that, we also offer utility tracking management, and we’ve saved our clients millions of dollars between late fees, erroneous meter fees, peak demand and billing error tracking.
Joe Fairless: That’s great stuff. How is tax code tied into utility fees?
John Tanner: It depends on someone’s operation. It could be whether it’s on the production side, or… If you look at the tax code on a utility bill, the numbers kind of seem endless, so we have an in-house tax code analyst [unintelligible [00:21:33].03] operating across the country. Different states have different tax codes. The utility company is never gonna tell you if you’re paying money that you shouldn’t be, but if we can go in and find in the tax code, whether it’s for production purposes, if you have a business that’s making raw materials, you can figure out ways that they shouldn’t be paying those taxes.
Joe Fairless: Great stuff, thank you for sharing that. Best ever way you like to give back?
John Tanner: As a company, we volunteer often at the Freestore Foodbank in St. Bernard. Also, in our parking lot here we offer free parking to the elderly.
Joe Fairless: Are they coming to hang out with you, or is your parking lot connected to something perhaps more engaging for them?
John Tanner: Well, it depends who you’re talking to… [laughter] There’s a couple things around the area here in [unintelligible [00:22:20].17] but sometimes they’re engaging with us; I don’t know if they mean to, but… It’s all for the best, right?
Joe Fairless: It’s all for the best, yeah, exactly. What is the best way the Best Ever listeners can get in touch with you and learn more about what you guys have got going on?
John Tanner: There’s a couple ways you can reach us. We have a LinkedIn page, My Utility Cabinet. You can e-mail us at firstname.lastname@example.org. We also have a Facebook page, and if you wanna reach out to me, I’m John Tanner on LinkedIn.
Joe Fairless: Awesome. John, thank you for being on the show, thanks for talking about RUBS versus sub-metering. To use your words, “sub-metering is RUBS on steroids”, and you talked about why – it’s more accurate, you get a more proactive look at things, not to mention it’s something that can add value to the property in the long-run whenever you exit, because you’ve taken a lot from the expense column and put it more towards the income column. Then in addition, the processing invoices for clients that you talked about, and some of the next-level things like tax code analysis… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
John Tanner: Thank you. You too.