I am evaluating the expense ratio on a park I have under contact and have a dilemma. The expense ratio as stated by the seller has the utilities included in both the income and expense categories. There is a bit of a profit margin in the utilities billing because he is allowed to legally bill at residential rates but is able to buy at cheaper corporate rates. The expense ratio with the utilities included has a little higher ratio than normal but the expense ratio with the utilities completely taken out has a very low expense ratio. Should I use the expense ratio with utilities included because of the markup?
I have never seen anyone be allowed to charge more for utilities than they bring in- so this is totally new to me. Though, in texas you can charge a 9% service charge on water…
That said- I would not leave that delta in as income. If you apply that income to the CAP rate- your paying huge money for that cashflow, and I would question long and hard if you can legally charge a rate different without being a PUC…
Not so unusual. Utility cost is on a tiered rate. If park pays lump sum, they get the volume rate. Resident pays the rate for the volume they use. The park resident pays the same rate as a residential home owner so they have nothing to complain about. The sewer company suggested it to me but the downside is I would have to pay a minimum charge for vacant lots. Rater tiers aside, a nominal markup for billing and postage is justifyable - However each state is different.
Thanks Jim & Andy. I did check with the utility companies and all is on the up and up. My thoughts were along the lines of Jim’s comment to keep them out of the equation. Thanks for the feedback.
I’m in Louisiana. I have 1/2 a dozen units in my park that I rent to folks for a flat fee. This number includes water, electricity, trash & yard mowing. In the summer they pay there rent on time simply because it’s to hot to have AC turned off.