I need your help in running some numbers. What I came up with sounds way too good to be true and I want to bounce it off the rest of you.
Starting August 1, the residents at my community will be paying for their own water and sewer costs instead of me paying for it. Everyone’s lot rent will decrease to $210/month which is about the top of the market for SWs in my area. There are 37 occupied spaces at this time and most people will get a $30/month decrease in their space cost. (Most people now pay $240/month which includes water and sewer.) Water and sewer currently run about $2,400 per month. It could be less as we fixed some leaks but I don’t yet have the bill for last month.
Here is what I get:
Water/sewer bill eliminated: $2,400
Revenue reduction: 37 X 30 $1,110
Net monthly savings (increased cash flow): $1,290
Let’s say I save just $1,000 per month. That equates to increase cash flow of $12,000 per year. At a 10% cap rate, this means the value of the community has gone up $120,000!!! This can’t be right, can it? What am I missing?