Tenant Buy In on Water Submetering


#1

With the monthly water/sewer bill in excess of $3500 for 46 tenants, it’s time for me to sub-meter one of my Michigan parks. However, I’m not sure how well the financial impact will be received by the tenants as most are on fixed or govt incomes.

I’ve been raising the rent consistently by $10/month every year (current base lot rent of $330), and I’m thinking that in lieu of rent increases for the next three years, I would sub-meter instead and have the tenants pay for water. The math dramatically favors sub-metering over rent increases and would impact the NOI in a big way.

Am I being to soft or concerned for the tenants well being?


#2

Are there lots of cheap places for tenants to move if you pass it along? If not, and assuming no regulations to stop you, do it.


#3

This is a newbie speaking here but from what I’ve picked up on this site is that the submetering needs to happen and be passed on to the tenants in order to keep your business sustainable. Its a hit now on the tenants but its saving your on your capital expenses down the road.

Be the non-stereotypical park owner and drop $30 bucks off their rent. $30x46x12 = $16560 less in gross rents but you’re saving $3500x12 = $42000.

Key highlights: lower rent, tenants have a bit more control over their actual monthly expenses, its more green and beneficial for the environment, and allows you to spend money on other expenses in the park that tenants may like to see.


#4

I would sub-meter and skip a rent increase for one year. Send a cordial letter stating in lieu of a rent increase on xxx date sites will be sub-metered. Don’t commit yourself to three years of stagnate income. Your other expenses such taxes and insurance will continue to go up. Don’t feel obligated to explain your financials or business plan to the tenants.


#5

what is your market rent, and do they include or charge back water and sewer


#6

What Marvel said, I would comp nearby parks and see what they are charging overall and what utilities the resident is responsible for paying.

For many not terrible parts of Michigan you’re likely going to be under market right now at $330 lot rent with the park paying water and sewer.


#7

Thanks for the input. This park is located about 8 blocks from Lake Michigan in an upscale coastal community so I suspect I am a little low on the lot rent. However, there are no amenities and my tenant base is mostly low income seniors mixed in with a few working families. Lot rent includes water/sewer/trash so I am leaning towards no rent increase for 2 years in return for sub-metering wat/sewer


#8

Are you expecting the bulk of that $3500 to be billed back to the 46 tenants? If so, that’s a $76/mo increase. Obviously you’ve already calculated all of the numbers but I’m wondering what others have done in this situation. A jump of $76/mo seems fairly significant.


#9

I was struggling with same issue.
What my proposal was is to lower rents by $20 and implement sub-metering.
Your tenants will probably appreciate this as they have some control over their effective rent increase.
The retired couple wont use nearly as much water as a family next door so their effective increase could be negligible.


#10

In order to be sustainable as a business tenants must pay the costs and provide a significant return to a investor. If not you close the park and walk away.
Worse case scenario when you raise the lot rents/bill back some tenants may choose to sell. This will bring in new tenants that are willing to pay the full rate or if they can not sell they will struggle with the costs.
If you are not passing along all costs you are taking a loss and operating as a charity. All costs should always be passed along with build in profits without any regard for emotions. If water costs X then tenants pay X. If they can not afford it then they can not live in the community, however it is very unlikely they could live anywhere else for less.
Call around to other community owners ad discuss the lot rents, water costs etc. and see if you are all on the same page.
If you are not in a position to pass along the costs you should probably sell and find someone else willing to take over the responsibility . You are only hurting yourself by letting your emotions interfere with business decisions. You are being soft from a business perspective which will ultimately negatively impact your tenants if you do not pass along all operating costs every year.
You can not be both a business and a charity.


#11

Thanks for the reminder! It’s pretty easy to fall into the trap of weighing emotion against sound financial decisions.


#12

In addition to what Greg said, the full $3500 most certainly wouldn’t be billed back to the tenants. First, it’s almost impossible to bill back 100% of the bill. So lets say 5-10% will still be left for owners water costs. Tenants are also much more conscious of usage when it’s metered so the overall bill will be quite a bit lower than $3500/mo.

That being said, personally I’d meter it then send out an “example water bill” for the following month along with some common sense conservation tips (turn water off while brushing teeth, stuff like that). Missing out on 1 month of recouped water costs isn’t that much money in the big picture and it’d be seen as a goodwill gesture by the tenants instead of them being blindsided by a big jump the first month. Just my thoughts…


#13

I truly appreciate the responses.

Two points for consideration. Most of my tenants in this park are on fixed incomes and cannot handle a large increase in monthly expense. Also, the majority of the water bill (60%) consists of non-consumption line items: municipal debt repayment, water capital replacement reserves, operations and maintenance, plant replacement, etc. These items are fixed costs and do not change whether I use 1 gallon of water or a 100,000.

So the reduction in actual consumption will have a minimal affect on the water/sewer bill. The real impact will be from sharing the fixed line item costs with the tenants. With this in mind, I’m leaning toward reducing the monthly rent by $20-30 for one year to offset the transfer of these costs to the tenants. The math demonstrates that I still end up ahead and my payback period for the initial sub meter purchase/installation will be measured in months.

Thoughts??


#14

Seems like reducing rent by about half of what you anticipate will be the increased cost to tenant is a reasonable solution.

I asked this same question to Frank on the call recently. My plan being similar to yours. He said, you don’t necessarily have reduce rent at all. Unless its going to put you so far above market that it will make sense for people to move out in protest.

Please let us know what you decide and how it goes. Thank you!


#15

Sub meter Please!!

Tenants will use less water, resulting in a lower water bill.

Create a new bottom line so that water collections are separate from lot rents!

I haven’t had one person come back and tell me they wish they didn’t meter.


#16

At this point, we sure wish we didn’t sub meter


#17

Why’s that? If it’s had that bad of an outcome I’m guessing you misread the market?


#18

MHP, Sub metering itself is a great thing. We ended up contracting with a company that, among many other issues, failed to complete the installations as contractually agreed. Long story short, do your research and then do it again if you are going to contract with a company to install the meters.


#19

What exactly did they do wrong? It’s really not that hard of a process.


#20

Who was the company that didn’t complete the installation? Please tell us so we can all avoid them. Thank you!