Utility Analysis

In our last post, we discussed the utility allowance and the need for owners to submit a utility analysis to HUD/CA in order to set the amount for each unit type. I began that post talking about the great headache of creating this analysis. Let me tell you why.

In order to create a utility analysis you need to collect 12 months worth of utility data and calculate the average monthly amount (you can submit it on the HUD supplied spreadsheet). A separate calculation must be done for each bedroom size. You do not necessarily need to collect the utility information for every unit in your property. Here is the chart of how many units you need to supply the numbers for:

So for example if your property has 10- One Bedroom units; 50 - Two Bedroom units; and 100 - Three Bedroom units, you would need to supply the utility information for all 10 One Bedroom units, 20 Two Bedroom units, and 24 Three Bedroom units.

Let me admit that for many properties creating this analysis is not such a big deal. Many utility companies will actually send you the utility information for every tenant in your property as long as the tenant signs a waiver that allows them to. If you are lucky to be dealing with such a utility company then count your blessings - the nightmare of the utility analysis will not invade your dreams!

There was a time that most utility companies cooperated and supplied the information but times have changed and many no longer do (I'm talking about you ConEd). Now you need for your tenants to bring 12 months of utility information to you!

Here is a list of all the reasons why this is a headache and some practical advice on how to avoid headaches (in addition to the obvious: 2 Advil and a shot of bourbon). I recommend reading the notice published by HUD in 2015 that details exactly what you need to do. It is a HUD notice that is uncharacteristically easy to read and understand so kudos to whichever public servant wrote it!

~The most difficult is where there are between 1-20 units in a bedroom size. In this case you need to provide the utility information for every unit. With the other unit counts you have wiggle room when a tenant is uncooperative, but here you need every unit's information. There is always going to be that one tenant who won't comply!

~In cases where a tenant does not comply, there are officially in violation of their lease and should have their subsidy terminated and/or evicted from their unit. When sending a request to the tenants you need to include that language in the notice. I do not know a single owner, however, who would be willing to take such steps. And I don't think that HUD realistically expect us to.

~If you send repeated notices to a tenant and they do not respond your CA will eventually let it go and allow you to proceed without the required sample size. This may sound like a good deal but I assure you it is not. Once you submit a utility analysis, HUD considers this the baseline for your property and the next two years you do not need to submit a new one but can you multiply your previous utility allowance by the HUD published Utility Allowance Factor (UAF). You can only do this, however, if you submitted a proper baseline. If you are missing any of the required sample sizes then it is not considered a valid baseline and you will to submit a completely new utility analysis next year.

~In building where you know you will have a hard time getting the utility information I recommend you do a lot of advanced planning to get it right. I have some properties where the site manager calls in each tenant and helps them set up online accounts with their utility company. She secures their login information and then when she needs 12 months worth of information she calls them in and helps them retrieve it (I don' think it would legal for her to login in to someone else's account, even with their permission).

~According to HUD guidelines, you can exclude a unit from your analysis if it was vacant for more than two months. In other words, a unit which is vacant for two months must be included in you analysis. Consider the following scenario: your property has 5 1BR units. One them was vacant for two months during the heat of the summer when the bills are the highest. If you include this unit's data in your analysis, the average monthly payment will be greatly diminished. I have had years where the utility allowance went down $60 because of something like this - can you imagine the outrage of the tenants when their rent goes up $60 a month (I know that their rent is not really going up, but to the tenant it seems that way because the utility allowance always comes off of their rent.)

~On that note, tenants look at the utility allowance as part of rent, and their utility reimbursement check as their money. If the allowance goes down and they have to pay more money they will not be happy. Tenants should be warned that if they do not supply their utility information there is a greater chance that their utility allowance will go down (smaller sample size). But be aware that the HUD published UAF will often bring the utility allowance down as well (in New York for 2018 the electric UAF was .949 and gas was .967). Side point: when the tenants portion of the rent changes (even if their rent goes down) because of the utility allowance, they must sign the GR 50059. If the tenant portion does not change then they do not have to sign the GR, only the owner/manager does.

~A utility allowance will cover whatever utility the tenants have to pay out of their own pocket. If a property covers a tenant's utilities, HUD will not give a utility allowance - duh. So if a tenant pays gas and electric the utility analysis must cover both. Very often these two charges are on the same bill and differentiating between them can be difficult. Sometimes tenants will go to third party providers for some part of their utility which can further complicate the matter.

It is not possible to go over every possible scenario here, but suffice today you can expect a headache! Being prepared is the most important thing that you can do to make this process easier. Learn from your past experiences and get working on difficult tenants/utility companies months before your analysis is due.

I used to like when a new property that I took over did not have a utility allowance. It was simply not worth the trouble. But the truth is that since utility allowance comes of the tenant's portion of the rent, it ends up being an additional rental subsidy. Practically this means the tenant pays less rent. It should be obvious that the less that tenants have to pay the more likely they are to pay it. One of the big advantages of owning subsidized housing (cause G-d knows there are a lot of disadvantages) is that much of the rent is guaranteed by the US government. The utility allowance, difficult as it could sometimes be, adds to the guaranteed rent and could be a big benefit to the financial health of your property.