Journey to Multifamily Millions

Submetering Secrets: How To Maximize Multifamily Profits With Kelly Koontz, Ep 106

• Tim • Season 1 • Episode 106

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Welcome to the Journey to Multifamily Millions podcast, where we discuss money matters with experts! 

In this episode, we have the pleasure of speaking with Kelly Koontz, President of Submeter Solutions, Inc., based in Kent, WA. Submeter Solutions specializes in selling, servicing, and installing utility meters and submetering systems both locally and nationally.

Kelly shares his incredible journey from the aerospace industry to co-founding a successful submetering business. He delves into the benefits and pitfalls of different utility billing methods, including RUBS (Ratio Utility Billing Systems) and submetering. Kelly highlights the importance of fair billing practices and potential cost savings for multifamily property owners.

Kelly also provides valuable insights into how submeters help in monitoring usage, identifying leaks, and improving water conservation efforts. Tune in to learn essential strategies for managing utility costs effectively in multifamily properties!



Episode Topics

[01:21] Meet our guest, Kelly Koontz
[01:56] Kelly's Background and Career Journey
[06:21] The Evolution of SubMeter Solutions
[08:05] Opportunities for Multifamily Owners
[12:08] Cost-Benefit Analysis of Submetering
[21:57] Common Mistakes in Utility Management
[24:50] What is one red flag every investor should look out for?
[25:30] What is a myth about the real estate business?
[28:22] Connecting with Kelly


Notable Quotes

  • "Cutting your salary literally more in half and joining your buddy who you've known forever, but have never worked with before, was a big risk." - Kelly Koontz
  • "The real power of submetering... when you pay for something that you're using, you tend to use less and you take more care of it." - Kelly Koontz
  • "The business itself has changed, grown over time starting from those meters online to what it is now." - Tim Little
  • "It's one thing to spend an extra couple of dollars because of a toilet and you have to jiggle the handle, that whole thing." - Tim Little
  • "I would tell you that the very single biggest influence to lowering the overall bill is having the residents directly pay for it." - Kelly Koontz
  • "If you can push that cost fairly onto the tenants, there are those common areas where things like electricity for lighting need to be considered." - Tim Little



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[00:00:00] Kelly Koontz: just like Goldilocks. They're just right. And you're recovering that full amount without getting yourself in trouble. No, none of your listeners want to be on the front page of the newspaper next weekend because they're that landlord that was overcharging for gas, electricity or electricity. So that's really a mistake that we want to caution. We're thrilled to work with you. We have databases and we know the laws and the codes at, anywhere in the United States will, Advise you and help you on making sure that you get your leases in the right situation. 

[00:01:10] Tim Little: Hello everyone and welcome to the journey to multifamily millions. I'm your host, founder and CEO of Zana Investments, Tim Little. And on today's show we have with us Kelly Koontz. Kelly is the president for SubMeter Solutions, Inc. based in Kent, Washington. SubMeter Solutions sells services and installs utility meters and sub metering systems locally and nationally. Kelly, welcome to the show.

[00:01:35] Kelly Koontz: Hi, Tim. Thank you for inviting me. I'm glad to be here. Talk a little about our company and what maybe some of your listeners might be interested in, how we can help them. Sure.

[00:01:45] Tim Little: Yeah, exactly. And they, depending on how long folks have been listening to the show, they may or may not make the connection on why I would have a utilities expert on here, but trust me, we'll get there. Before we do that though, Kelly, please tell us more about your background and how you got started on your real estate related journey.

[00:02:03] Kelly Koontz: Happy to give you a bit of my background. I'm an old dude these days. Just turned 63. I was at a high school reunion and wondered where all these old people came from. And then I looked in the mirror, but, I started my career, we're just based outside of the Seattle area. And so a lot of Seattle, of course, has been building,airplane aerospace business. And that's where I started my career way back out of. College and, spend some time in management and manufacturing companies in the aerospace business and, let got into this whole submetering and utility billing world. back in 2010. And it's a fun story to tell you, Tim, about that. My, one of my best friends from forever, had started a small,online business to sell all things, gas and water meters. And there's an interesting story about him connecting with a friend of his,had a distribution company out of California. He realized nobody really was doing that online back in the early 2000s. And so he built a website and, and started selling gas and water meters. And I, that, so that's my current business partner, Jeff, who founded Submeter Solutions. And I remember seeing him and joking with him going, that business might actually have some legs if you keep at it, but. His goal was always just to make enough money to take his family on vacation. He was working, his work day job after that, but he was soon finding success enough that he quit his job and was doing this full time. And, I had an opportunity. I was working at a medium sized manufacturing company. It was flying to Asia every other month. big job doing well and worried about whether I was going to have a heart attack and burn out. And, he said, you should come join me. So long story short, we doubled the size of Submeter Solutions when I joined him in early 2010. is history. We've been growing ever since then. We now are a company that does, literally tens of thousands of meter sales every year. And we're billing for about 25, 000 units every month, all over the country. 20 plus, Folks on our staff, our team and my business partner, Jeff, will retire in 2020 and I'm hoping to join him sometime in the next few years. But right now I'm still having too much fun. So that's my story.

[00:04:27] Tim Little: Nice. Yeah, so I want to get in a little bit because you talked about how, you joined him and At the time, it sounded like you had a pretty decent job, but burnout travel I know how that stuff can start to wear you down But you must have seen some potential in what he was doing that you thought it would be enough to provide you with an income which is important. So what did you see was the potential there, when you decided to make, what I would guess is a calculated risk in quitting your job and joining him?

[00:05:00] Kelly Koontz: It was a big time risk number one. It was a good time in my life when my Children had gotten through college and it was an opportunity where making a risky decision like that made more sense, but cutting your salary literally more in half and joining your buddy who you've known forever, but have never worked with before, was a big risk. But the opportunity not just to, to work with him, which was a big, huge part of this, he's a super quality guy. and quite frankly, I've. Really, I was investing in both him and me more than the actual concept of what our business model is. and that's really proven to be successful. so I think that's really the Yep. germ of making that, making that work for us. We certainly have picked an industry that we think is fantastic in that it's needed by folks. When we tell our story, most of the time, we don't have to press, it's an easy sell and people understand what we do with recovering utility costs for multifamily owners. And,it's healthy. it's got an environmental positive impact. We feel good about what we can do,to help our world out as well. So there's a lot of things like that really align nicely with my values and it's been nice to see our company grow and really stand behind those as well.

[00:06:21] Tim Little: Yeah, and it sounds like the business itself has changed, grown over time starting from that, Those meters online to what it is now. Can you talk a little bit about what that business looked like when you first joined it, probably relatively humble. They sell the metering systems online, but I imagine that since that time it has grown into something very different. Can you talk a little bit about the differences in what the business looked like when you joined the offerings that you guys have now?

[00:06:55] Kelly Koontz: Yeah. Great question. yeah, certainly. Most of our business when I started was selling metering equipment. and a lot of that was done online, direct shipments from suppliers to our customers. part of what's changed is we now. pair more equipment and come and make, add value by, by putting whole systems together and configuring them, helping our clients to get through the installation process. And if that means we need to hire a plumber on our own to put a meter, a water metering system in, for instance, we will do that now. And then the other huge part of what's grown since I started is the monthly utility billing services that we can offer clients once they've got a metering system in place. in their apartment or condo and, and the different service levels that we can support,including collecting the money and credit card payments and online services and translation services. from very humble starts to when it was just Jeff and me to a real full service, utility management company is what we've become.

[00:08:05] Tim Little: Awesome. And I think you hinted at a few of these things, but what are some of the biggest opportunities for commercial multifamily owners specifically on where they can save money when it comes to utilities?

[00:08:17] Kelly Koontz: So Tim, I'm sure, If your listeners are a multifamily owner or a manager and they're looking at their financials, their P and L, they can see that one of their largest expenses year over year is just paying the utilities. And you may find that maybe the electricity is being handled and billed directly to the residents, but, very commonly it's water or sewer or even gas. it just, you're getting a single bill for the whole property. And so as an owner, you're faced with how am I going to cover those costs? And,for many years, the answer to that is, I'm just going to add a little extra to my monthly rents as I charge my rents and hope that extra 50 kinds of covers that water sewer every month. And,the challenge with that is, is that number one, it may not be enough. if there's a toilet flapper up and. And in a couple of your units that are leaking and you get a bigger bill that's coming out of your pocket if you're the owner, number two is your residents don't really value that, that utility, water is essentially in their mind free. And so they're going to not worry about conserving that. And that's all basically at your cost. if you're just. covering that water sewer cost inside of the monthly rent. Some people have taken the next step up, which is an allocation based method of recovering that industry likes to use that acronym rubs ratio utility billing systems. And that's certainly better than just trying to cover it inside the rent, but really you're still not creating any incentive with your residents for them to conserve. It's really, they're still paying for water that maybe their neighbors are wasting and vice versa. And we really believe that the very best method is to literally put a meter on every unit and then bill your residents for what they actually use. And when you do that, a magical thing happens quite frankly. and we see this time and time again when we put a metering system in a property that hasn't had one, the overall water bill after say three, four months is actually going to drop 20 to 30 percent because human nature kicks in. And when you pay, when you're actually Well, to pay for something that you're using, you tend to use less and you take more care of it. So that's the real power of sub metering. And our business is all about helping you to achieve that. It's your property. And that can be any size property, hundreds of units down to a, And, we're going to help you in two ways. We can get that metering system in place and install and read everybody's usage, whether it's water, gas, or electricity. and, then part two is we can, if you'd we can help you with that monthly billing service as well. So that's really the heart of what we do is we work with anybody who's got a property, a multifamily or a multi unit property that's got multiple tenants that can be apartments and condos can be a mobile home park. It can be marinas. It can be a commercial strip mall, commercial office space even. but, anywhere where you're getting a single bill from the utility and,and we are going to help you split that up.

[00:11:36] Tim Little: Yeah, and I'm glad you went into the details on rubs because that's one of the most common that I've seen anyways, other than individual metering. And I also couldn't remember what the R stood for. So I'm glad that you brought it up first. but that's an important point, right? it's one, you could argue it's a matter of fairness. for the tenants themselves. But then there's also the water conservation aspect if you want to get into that. and then there's a pure cost perspective from the part of the owner. talk to me about that cost benefit analysis. When an owner talks to you and they say, Hey, I have a triplex or I have a hundred unit complex Shit, and it's not already sub metered. How do they do that math to figure out whether it makes sense for them to drop the money To put in those meters because that may be part of an overall value add plan, right? So that they could sell that to the next investor who buys it in five or 10 years, but it needs to make financial sense for the bottom line. So can you talk a little bit about that?

[00:12:46] Kelly Koontz: I sure can, Tim. and I'm really glad that you're thinking that through SMART. and I want to first start by saying, if your listeners are, in that first condition where you're just trying to cover it in your monthly rental, if nothing else, move to a RUBS methodology, that's certainly going to help. disconnect you from the, what you're bringing in and, from what the actual bill is and allow you to start doing a better job matching up the costs with what you're collecting from your residents. So certainly that would be the first step. And we have a lot of clients that we do billing services for that are rubs and that's not, it's certainly way better. Then not doing anything at all. But in terms of taking it to that next step of actually adding a metering system. Yes, there are some upfront costs. I think that one of the real surprises when we talk to folks that ask us about metering systems, is that they almost always are really surprised that It's much less expensive than they think it is. And I'll be happy to share here a few examples of that. But, we are actually able to help you with coming up with a return on investment calculation. Most of the time, especially if you are trying to cover those rents in your monthly, those costs in your monthly rent. And we put a metering system in and start billing directly and we'll continue to use water and sewer as a good example. and if you choose to not lower the rent at all, or maybe lower it a little, you're still likely going to recover your investment costs for the hardware within one year. And so we see some very fast, time return on investments that, these, this is going to, improve your cap rates. If you've, if you're considering making a sale of a property, your investors want to see that you've put investments in like a metering system because it just makes your property more valuable because they know you're controlling those costs well. And then, I mentioned that toilet flapper leak. I think that's worth noting here that that's a really big deal now in our industry as well. In addition to being just able to recover those costs, the equipment that we now offer It actually allows you to get an, an emailed or a text alert when the system recognizes that water has been running for 24 hours. And so you can solve that problem. Residents are going to be happy. They're not going to get hit with a big bill. Your overall bill is going to be less. Everybody wins in that situation. And we have clients that are now buying equipment, metering systems really on the basis of just that,leak. 

[00:16:01] Tim Little: And that makes sense too, right? Because leaks can escalate. it's one thing to spend an extra couple of dollars because of a toilet and you have to jiggle the handle, that whole thing. I know there's like moisture detectors and stuff like that. That might be out of the scope of what we're talking about here, but if you catch a leak like that, that could save you, thousands if not tens of thousands of dollars.

[00:16:21] Kelly Koontz: Yep, that's growing as well. Just to touch on that, that actively detects integration with our metering, architecture. And so that can even be an alert as well within a couple minutes of detecting a flood in a bathroom. We've, particularly,low income housing and, some,institutions like education, they're really talking to us about that as well. Give us a call. We'd be happy to talk about that as well.

[00:16:48] Tim Little: Yeah, and there's a couple of things I wanted to hit as you were talking through it. I just wanted to clarify for folks on the rubs piece when you first hear about rubs, it can be a little deceptive in terms of Oh, you just take the number of units you have and divide. And that's actually a lot more complicated than that. I think I would think more complicated like algorithm or formula is the right word that you use to figure out how much each person pays. But it's logical, right? So someone who has a three bedroom unit with Is going to pay more for water than someone with a studio with one bathroom, right? it's not just a matter of what you, every unit pays the same. It's based on the expected usage as I understand it.

[00:17:34] Kelly Koontz: Yeah, you're absolutely right, Tim. you need to set up and, and let your residents know in their lease what that method is. That could be based on square footage, or as you said, number of bathrooms or number of bedrooms. Many times it's based on occupancy. And even that can get a little complicated. it's not a straight line. So we see occupancy rubs, algorithms where one resident is a value of one, but two residents is a value of 1. 6. So we have all of those types of things that try to make it as fair as possible. But what's really key, though, is that even if it's based on occupancy like that, and yes, you are getting an opportunity to recover those costs, but you're still not gonna, it's still not based on what really is truly happening with the utility water. And as an example,

[00:18:28] Tim Little: Yeah. And one thing I was going to ask that you guys do, and it sounds like you might is like an audit to see Where people are at and how much they might save by putting in new hardware I'm thinking like low flow toilets The air aerator faucets or whatever they call them I think the one area where you should never skimp is the shower, although i'm sure there's techniques there But you really don't want to get on the bad side of people when it comes to water pressure in the shower Because that's a very divisive topic But are there those types of audits That you guys can go in and do and say, Hey, if you had these more water saving, hardware installed, you might save this much, over the long term or per month.

[00:19:12] Kelly Koontz: We've actually worked with a couple,companies that specialize in doing that kind of analysis. And they've, we've partnered with them along with putting systems in and, All of those ideas that you mentioned, and then some are always,really helpful and tend to be measurable. I will, though, point out that whether you're putting in low flow faucets or even the shower,low water toilets, those all make a small dent. But I would tell you that the very single biggest influence to lowering the overall bill is having the residents directly pay for it. And that is, a multiple of, in, in terms of it's real impact on the size of the bill. And, boy, I can tell you if I go,stay at a hotel and, it's got a fireplace or something. I burn that fire. I keep that gas fireplace on all the time because I know I'm not paying for it. And if you have that. Kind of attitude when you're on a weekend vacation, think about what your residents think about all day, every day. And that's really the power of what we can offer.

[00:20:17] Tim Little: Yeah, and that makes a lot of sense. Obviously, that would be the biggest thing if you're paying for it, if you can push that cost, fairly onto the tenants. But we have to acknowledge, too, there are those, the common areas. where things like I think about electricity, for the most part, right? If you have extensive lighting throughout your property, especially if it's large, you want a lot of lighting for safety reasons, stuff like that. Have you seen instances where you're able to recommend to a customer or is this not part of what you do? Where you say hey, you are spending a lot of money on your lighting and maybe that pushes them to say, okay i'm gonna go get leds versus the regular light bulbs I have at least providing them that information And that data so that they can make smarter decisions

[00:21:07] Kelly Koontz: Yep. who was it who famously told us we can't control something until we measure it. And really that's where in, if we can put an electric meter on your parking lot lights, we now really can truly calculate how much money you're spending every month on those common areas with electricity. And that's something that we do all the time. And so it really comes down to, are you making some fundamental guesses? Are you hoping and wishing that you're covering things or let's put a meter on and let's find out what it really is.

[00:21:39] Tim Little: Awesome. Yeah. And those were just some of the things that I was thinking through as you collect that data . Again, you can make a relatively small investment that may save you a lot of money over time, but you wouldn't have known that unless you had that data to guide you in that direction. So why don't you talk to me about some of the biggest mistakes that you see property owners are making when it comes to utilities?

[00:22:04] Kelly Koontz: Yeah. I think one of the mistakes that we tend to hear about and we're really careful to work with our clients is, which is an important principle as we talk about this is that,being able, whether it's rubs or some metering to charge directly back to your residents for their utility is in almost all parts of the U. S. legal, And it's, appropriate, but it is not legal or appropriate to try to make this into a profit center. One of the mistakes that sometimes we see folks make is, Hey, this is great, we're going to put some meters on and I'm going to add 30 percent to the cost of the utility. And I'm going to put this in my own pocket because I paid for those meters and I'm, Managing this. And so we would like to start right there. This is not an opportunity for you to build this in with extra margin. The laws are super clear about that. You do get to recover all your costs. And so as we talk about not just metering systems, but that whole billing process, it's super important that you're either Whether you're doing it yourself or whether you're working with a company like ours that provides you that third party billing service, that you're sending bills out that are not too much, but not too little. They're just like Goldilocks. They're just right. And you're recovering that full amount without getting yourself in trouble. No, none of your listeners want to be on the front page of the newspaper next weekend because they're that landlord that was overcharging for gas, electricity or electricity. So that's really a mistake that we want to caution. We're thrilled to work with you. We have databases and we know the laws and the codes at, anywhere in the United States will, Advise you and help you on making sure that you get your leases in the right situation. Our billing services are such that we can work with your software and make sure that it's set up so that it's as easy for you to use as you need it to be.

[00:24:02] Tim Little: Yeah, I'm glad you put out that cautionary note because you know the Savvy investors are always trying to think of new and innovative ways to bring in additional sources of income We just need to make sure that one it provides a value to the tenants themselves And two, we're staying on the right side of the law, which is the part that you're getting at. it's perfectly legitimate to, to throw in, a laundromat and then charge for that service of using the laundry. It's a little different when we're talking about utilities. So I'm glad you put that disclaimer out there. All right. we do need to transition into the turbo round now. So I'm going to ask you three questions that I ask every day. Every guest that's on this show and I just asked for a quick, honest answer. Are you ready, Kelly?

[00:24:46] Kelly Koontz: You betcha. Bring it on. I

[00:24:49] Tim Little: All right. First question. What is one red flag? Every investor should look out for.

[00:24:54] Kelly Koontz: think the first thing that comes to mind is it too good to be true? Maybe you get common as an answer, but boy for me and my investments, I'm always so quick to get a second opinion. If something looks too good to be true. I'm old enough now to realize that, maybe there is something there that you need to dig a little deeper on, always investigate, use the facts, try to separate out your emotion and get, let data make your decisions.

[00:25:21] Tim Little: Yeah, absolutely. And sometimes putting those emotions aside is the hardest part, especially when you get excited, but all right. Second question. What is a myth about this business that you would like to set straight?

[00:25:34] Kelly Koontz: Oh, super good question. Some of your listeners may be going, Oh yeah, I've heard of submetering. And that's what those 200 unit apartment buildings do. But I've only got a six plex. This isn't for me. And that is such a myth. We do lots of submetering projects and systems for, as small as a duplex. If you've got a small property. You're paying a single bill, the numbers will pencil out, challenge us on that. We'd love to give you a proposal for your property, big or small. and, then, you may still want to do the billing internally, in house. We'll set you up for success with that. But, really it's important to know that this is going to be less expensive than you think it is.

[00:26:18] Tim Little: Yeah. And, just a quick follow up. I assume that's something that you guys can do with some level of certainty, just based on the details that someone gives you about their property. Is that right?

[00:26:31] Kelly Koontz: It's exactly right. If, if your listeners are interested in finding out more, we're going to give you a website to have them visit. They can fill out just a bit of information and with a phone call. five or 10 minute phone call with one of our specialists. We're going to ask a few specific questions about your property and we'll send you a proposal that is right down to the penny on the hardware costs. And then we'll work with you on installation details. If you're, and, whether you are needing to hire,Say a plumber that's local or we can help you with that. We'll get you everything you need so that you have a really good understanding of your cost.

[00:27:08] Tim Little: Awesome. Thanks. All right. Final question. What does success look like to you?

[00:27:13] Kelly Koontz: I'm going to jump out of the business world, Tim, on that one. I am a proud father of three adults. Children with sons in laws, they're three adult daughters and sons in laws and five granddaughters. If your listeners are counting, that's eight and no with girls in my family. And, boy, we're talking on a Monday. I got a chance to see a couple of my granddaughters just yesterday. And when I get a big smile from them, when they call me pa, that is success for me. I know I'm doing something right. If, if, they're happy and I'm, Being around me and that is what life's all about for me.

[00:27:49] Tim Little: There you go. I'm a girl dad, too. I got two right now, five and eight, almost six and nine. a little far away from the grandkids, but I'm looking forward to that day myself.

[00:28:00] Kelly Koontz: It'll come faster than you think, Tim.

[00:28:02] Tim Little: Yeah, exactly. The time does fly. All right, Kelly. I really appreciate all the tips that you've given us on here. Even though it's not something that's talked about all the time, it is hugely important for the bottom line of virtually any property, right? So please tell our listeners how they can get ahold of you. And if there's anything else you'd like to share with them.

[00:28:22] Kelly Koontz: Yep. Our company is SubMeter Solutions. We're just outside of Seattle in Kent, Washington. We do, we service all over the United States and into Canada. Our website is SubMeterSolutions with an S at the end dot com. And if you're listeners go to our website slash Podcast. They're going to land on a landing page where they can fill out their name and contact information. And one of our specialists will give them a call and we can get you a proposal, talk to you about your specific situation and answer any questions you have.

[00:28:54] Tim Little: Awesome. Kelly, thanks again for coming on. We'll have all that information in the show notes. appreciate you being here and look forward to continuing to see you do big things on your journey.

[00:29:04] Kelly Koontz: Thank you very much, Tim. It's been a pleasure.

[00:29:06] Tim Little: Same. Have a good one.

[00:29:07] Kelly Koontz: Thanks.

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