RUBS/ Utility bill back actually increase NOI?

[John Blanton]

When looking at the opportunity to increase NOI through decreasing expenses the ability to bill back water/ utilities to the tenants clearly looks like a winning proposition. In many of the C+/B- areas I am looking for properties in NC many of the are master metered and water is included in the tenants monthly rent.

The rents per unit are below market (ex $50-150/door) and you are looking to increase the rent per door, but also make the tenants responsible for their own utilities. Win-Win right? Increase income and decrease expenses --> increase NOI!!

In my theoretical scenario I am thinking more C+/ B- tenant base. If you increase the rent, but also increase the amount the tenants need to pay for utilities is your tenant base really going to be able to afford both?

Do you really get the Win from the increase in rent and the Win from decreased utilities? Or are you just robbing Peter to pay Paul, by being unable to increase rents more because you are now also making the tenants pay for water? You do increase NOI, but not by the leaps and bounds that were predicted.

I know this can be dependent on comp properties in the respective areas and what they offer in regards to their tenants, just curious if that is the only litmus test for this type of underwriting scenario.