Higher rent or bill back utilities?

I’m doing research on park comps. I’ve got a park I’m looking at on city sewer/water at roughly 100 per pad. The area rents are 350-400 per pad but most parks (if not all off the comps) appear to be on well/septic. Am I limited by the total cost upper bound of 350-400 per pad? I’m wondering if I’m stuck at the competition rent and having to eat 25% of the rent per pad in utilities. Are there any strategies that work well in this circumstance such as setting rent at 325-350 and billing back the utilities to tenants? Their total cost is higher than the competition in that case.

Also, there is no affordable housing in the area and no other parks in city limits. Avg rents for a 2 bedroom are 650+ per month.

With lowering rent to $325 and billing back utilities, total cost actually might not be higher. You might be paying $100/pad/mo in utilities, but the tenants aren’t going to be paying $100/mo in utilities. Not for long, at least. If you submeter, usage will drop substantially. So maybe it drops by half to $50/mo plus your $325 rent…then you are right in line with the $350-$400 level market rent. Of course this is assuming there is not a massive leak in a line and the utilities are that high primarily due to the actual usage by tenants.As far as where to set the rent itself if you bill back, hopefully Frank or someone else will chime in because that is a bit above my knowledge/experience level.

OK, here’s what you got. You know that you have $100 per month per lot average in water/sewer, but you have absolutely no idea where that water is going. It might be that $70 of that $100 is going in the ground as a result of main-line leaks. That’s not uncommon. If you sub-meter, you’ve done nothing to fix that problem, except waste a lot of money on meters. So you want to have American Leak Detection come out and find your leaks, Then you fix them, read the meter for a couple days, and see how much your daily water use has declined. It might fix your whole problem. But what if American Leak Detection says that there are no leaks, or you fix them and the bill declines only $10 per lot? Then you are suffering from tenant abuse, and the only way to find the problem is by sub-metering. Once you sub-meter, you’ll find that 10% of the tenants will have water bills higher than their lot rent (bills of $300 per month are not uncommon). These people will probably end up being non-renewed or run off. Then you’ll have another 40% that are high users but not as much as their lot rent. They can change their behavior and/or fix their internal toilet leaks, etc. The next 40% will have usage that is fine and the bottom 10% will have so little usage that you’ll assume that they never take a bath (and you may be right). Studies have shown that sub-metering reduces consumption by as much as 30% community-wide. But unless your goal is to save the environment (which is not a bad goal, but we rank making money with our park first) you should not sub-meter unless 1) average per lot consumption exceeds around $30 per month and 2) you have repaired all main line leaks. Remember that it is much cheaper ad easier to raise lot rent $30 per month to cover all water/sewer costs and to pay to put in meters, read them, bill them, collect them and repair them to collect that same $30. And – this is the most important point of what I’ve rambled on about – IT WILL DO YOU NO GOOD TO SUB-METER IF THE PROBLEM ALL ALONG WAS A GIANT LEAK IN YOUR MAIN WATER LINE.

Hi Frank, I should have clarified this but the water/sewer cost is a set rate per pad by the city. So there is no savings to be had on gallonage.It’s a screwy situation. My comps show that competitor parks on well/septic earn about 350-400 (lets call it 400) per pad so I’m stuck on this one earning 300 per pad maximum. Knowing that, am I better off advertising 400 bucks lot rent (and paying water/sewer) or selling the lots at 300 and billing back 100.

Are you saying that the city charges a flat $100 per customer?

Yep, roughly. It’s considered multifamily use property with a flat sewer rate of around 87 per hookup. The water is cheap and the total pad bill is about 100 bucks.

Personally, I think you need to hire a lawyer, as there’s no way that can be legal in my opinion. Most cities have a set minimum of $25 per month, even if your usage is zero. What you are describing would be the first I have ever heard of – and it makes no sense. Call your state MHA and see what they say, then call some other park owners and see if that’s what they’re paying in the same city. If it’s actually true, then I’m speechless.  It makes no sense.

Frank, I edited my post for clarity around your response time and included the fee separation. Is the potential legal issue charging a flat rate on sewer per pad? I spoke with the city and they had enormous operational cost issues with their new plant buildout so sewer is quite high. I’m searching for a way to reduce that cost.

Are they charging apartment owners $100 per unit per month? I’ve never heard of anything like this.

I’m not 100% on it Frank with the apartments but I believe they pay the flat sewer fee the same way. I’ve been on the phone with the city utility folks for a couple hours researching. For sewer they  have a mufti-family code where they charge the property owner 87 bucks per sewer hookup. I am essentially paying a fee per family. A couple local plumbers told me that’s just the way it is and I can’t get around it. I’m probably going to walk away from this deal.

Walk it – this municipality is on crack. If they are this crazy, I hate to think what the rate will be in five years – your total revenue?

Hi Frank. This park is an 8 cap currently with some other structures on the property including a couple houses, a small strip mall, and a large shop. Renting those out will bring it up to a 10 cap.I’ve been talking to a couple other park owners and it looks like those crazy sewer rates are common in rural Washington.