Raise Lot Rent vs. Make Tenants Pay for Water Themselves

I have a small MHP (~20 lots) under contract closing in a few weeks - it’s my first park. Lot rent is $225 which includes water, sewer, and trash. Lot rent has not been raised since 2011. Park currently pays for all utilities except for electricity and the water portion of that is about $30 per month per lot.

My question is the following: assuming the tenants can only afford one of these two options, should I just raise lot rent by $30 and continue to pay for water, etc. myself or should I pay the $15k to sub-meter water and have the tenants start paying for that themselves? Would seem to be the same benefit to NOI, but obviously raising lot rent costs me nothing in capex. Is there some other benefit to sub-metering water (and making tenants pay for it) that I am missing? Any input for a rookie park owner would be much appreciated.

Matt

If you sub-meter your tenant, who will bill them for water? City, you or a 3rd party company?

City will bill tenants directly

What are the comparisons for surrounding parks, rent, water billing etc.
Are they owner occupied or POHs.

What are the regulations regarding utility submetering in the state your park is in? Some make it a pain. Oregon requires that you cant have raised the rates in the last 12 months and have to reduce their lot amount by the amount of their average water bill and a few other fun items… like if you own the water system you cant charge the customer separate from lot rent. Better know exactly what your getting into. Simplest is just raise the lot rent some times.

All the homes are owner-occupied. Park is in TX. Have already spoken to the city about the feasibility of doing this. They are fine with it.

Raising the rent is obviously lower hassle (and costs me nothing) - leaning towards just doing that.

If the city will bill the tenants directly, that is a huge bonus. Once the meters are installed, reading the meters and billing the tenants can become a monthly chore.

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The Water usage in my park went down 60% after I installed sub meters. People were not concerned with running toilets and leaking faucets when they did not have a bill to pay. I had been paying yearly penalties for over use of our water allotment until we went to meters. We bill the water customers ourselves and add 10% administration fees. I can keep an eye on who is not paying their water bill.

In my other park, tenants are billed directly by the town. I have no control over the water. If someone moves out owing the Town a water bill, the Town sends it to me. I am ultimately responsible for the bill. They threaten to file a lien on the property if I don’t pay.

Another side of the question.

Assuming numbers support increasing both I would do both. One immediately upon purchase (rent) and do the water next year. Big advantage to having owner occupied is the increases are less likely to result in move outs.

If the tenants are using around $40 per month or less of water/sewer, then just raise the rents and don’t install meters. When you install meters you 1) have the cost of installation 2) the cost of reading them 3) the cost of fixing them 4) the cost of billing them and 5) the effort of collecting them. When you raise rent you are not faced with any of the above. An increase is an increase, regardless of whether it’s pushing back the water on the tenants or simply raising rent. However, if the tenants are using excessive amounts of water (like $100 per month) installing meters may be the only solution to taking control of the water loss.

Matt- I would meter the park immediately and without hesitation. Assuming 20 units you reduce your expenses $600 per month or $7200 per year. You cover the cost in just over two years. Having the park metered also will help it’s resale value. I would also find a way to get the tenants to pay for their own garbage. We eliminated dumpsters from our parks and made arrangements with the Cities to can each lot. City we pay the garbage bill for all residents and then have a separate assessment on each statement for the garbage. Get out from these expenses immediately… then raise the rents next year and every year thereafter slightly.

You can even tell your residents that because you are metering the park and having them cover the expense you will not be raising the rent for this year. Also don’t worry what other parks in area are doing… they will follow your lead. Someone has to be a leader…

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MDM…
See my reply below and consider it as you wish. But do ask yourself this question… Would you spend $15,000 to get an annual return of $7200 every year… for as long as you own the park? No one likes rent increases… but people look at that differently than utilities. Pad rental is one thing; Utilities are another. This is good money well spent.

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Frank -

I know that you guys, like myself, avoid rent control areas but, I still remember being extremely concerned about that in my Florida properties and that was one of the reasons I sold those off in the 1980s. While that was an overreaction and premature on my part, I still to this day sweat what might be coming.

I am, even in Illinois, always planning to shift water costs, garbage costs, etc, to direct pay by the residents just in case rent control rears its ugly head. With our cable, land line telephone, and wifi, we have a separate company to offer and bill for those services just in case.

Is your response based primarily on the upfront costs, or something else?

I seriously doubt FL will get rent control. We’re nowhere that liberal.

Although as the people from the northeast move down here to escape the mess they made in the New England states, many of them do inexplicably vote for the same insanity that is destroying their area.

We tend to lean slightly conservative for the most part.

Is Illinois more difficult to submeter w/s than other states? For some reason I remember it may have been.

Have done some digging here and haven’t been able to find very much.

Definitely sub-meter. ONLY way to control leaks.