W/S billl 67% of gross income. Replacing water lines in IN

Hi all:

I have a park under contract with extremely high water bills. 67% of gross income goes to water/sewer . Located 30 miles to Indianapolis in a city with 10% unemployment in IN . Good demand for low income housing. 55 lot. 30 occupied. lot rent is 255/ month. Public Water/sewer. Water consumption is 16,000 gallon/lot per month. Park is built in 1950s and have galvanized lines. 2 meters in the park no sub metering or billing back exists.

The data suggests that there is serious leak in water lines besides tenants high water consumption.

Plan 1. is to sub meter and bill back. also repair all ( the toilets, faucet leaks at trailers) that will be $300 to $500 per lot. = $15,000.

Plan 2. change water lines.

Q1. Can you evaluate extend of water line repairs needed by looking at water bill consumption?

Q2: How much would it cost to replace water lines per pad in IN. I heard it can cost as much as $4,000/lot.

Q3: Ways to spread of cost of repairs over the years?

Q4: Is it OK to do the repairs in the middle of the winter?

Any input on water line repairs will be much appreciated.

thanks

Sema

We purchased a park where 25% of the rent went to water. 67% is a new world-record!

I think you need to do your due diligence very carefully before acquiring this property. It sounds like the water lines are completely shot given the age of the park. You will probably have to replace all the water lines, and that can get very expensive. Please get a few bids from contractors on what it will cost to replace all the lines. That will be your maximum downside.

Also call American Leak Detection. For less than $1,000 they can come assess where your leak(s) are. You may get lucky, and find that all the water is leaking from just one or two easily-fixed breaks. (My money would be against this, however.)

Once you get a handle on how big of a water repair problem you have, and and only if you are certain the purchase price has been fully discounted to pay for this serious deferred maintenance, should you buy it. Then get the repair crews on-site immediately and install the meters immediately, and begin billing for the water usage.

-jl-

HI Jefferson;

Thanks for your input. Residents let water drip to prevent freezing per the manager. 16,000 gal is monthly water expense per lot. I think there are underground leaks but mostly tenants abusing as they are not paying for water. three plumbing contractors are giving me quote on sub metering and changing the water lines. Based on #s I get, I will make the leak test.

Did you change water lines on any of your projects? and how much was approximate cost per lot to change water lines and put the roads or pavements back in to place?

thanks

Sema

This park uses about 4 times the water that mine does per lot; if you were to get this repaired it appears as if water would still cost about $45 per lot…that sounds high to me for a midwest locale.

I would find out how much water costs in this general area, and if there are extenuating circumstances with water rates being high for the area in which the park is located.

In my area a rural water district was mismanaged for a couple of decades by not raising rates and building up their reserves; when large repairs were needed, they couldn’t pay…the upshot is that residential water bills are now $100+ in this district, but not elsewhere in the general area, very much a competetive disadvantage.

Sema,

Based on the numbers given the park is spending over $60k per year on water/sewer ($255 x 30 lots occupied x 12 months x 67%). Let’s look at this from an appraisal/value standpoint. I would view it as putting $60k right to the bottom line if everything is fixed and metered back to the tenants. Using a 12% cap as an example it would be add an additional $500k in value. Keep that in mind when you get bids. Also, if the tenants know they have to pay their own water, consumption will go way down.

Good Luck!

Sema -

We’ve never bought a property that required an entire re-piping of a park, so I can’t help you out on what those costs would be.

As regards replacing meters, we like the Minol Minomess 130:

http://www.minolusa.com/pdf/Minomess-Meter-Information.pdf

It costs around $140/meter, plus around $60 labor = $200 total.

FYI, our tenants use around 7,000 gallons/month, and consumption drops by around 1/3rd when tenants are billed for the water they use.

Best,

-jl-

Sema,

I just purchased a park in a cold weather area with the same problem. not 67% but 44%. (the worst offender was 36k gallons in the first 10 days).Our problem was clearly because people were letting their water run to avoid freezing. As long as they are not paying for it they will continue to do so. I immediately had meters installed, told tenants that the first month is on me and that we would send them an invoice of what their bill “would” have been for the month, and the next month they start paying for their usage. They have not been billed yet and we have already seen over a 20% decrease in usage and a whole lot of heat taping going on.

Sema,

This is AWESOME upside. Get your estimates and negotiate it down - then this is ALL upside. I would be very excited about this.

Dave and I have owned, cumulatively, about 200+ parks. In all those parks, we have only replaced the water lines one time ( so that’s 1/2 of 1 %). All the comments on this thread have been excellent. I would do all the proactive fixes discussed before I would even think about line replacement. The plumber’s answer to any question is “let’s replace the lines” – it’s the highest amount of money they can generate on any project. But the correct answer is seldom what the plumber wants to hear.

Sema,

You obviously have to do something - patching or replacing, that will be up to you. I like Frank’s answer - replacing is drastic, so I ass-u-me patching is what he recommends.

I would also go in and talk to the head of the water dept and ask if there is some program on water line extensions.

Frank is less charming than I, so I can understand why they like me more :slight_smile: but we’ve had great results in less populated areas to get subsidies on water line extensions. Here’s how it works in a nutshell:

You purchase the meter, they put in the waterlines. It is of course a convoluted govt program, but you pay $500 for a meter and they pay up to $1000 in infrastructure - by them - to their specs, so the water dept takes over maintenance on those lines as well.

It’s a super program that even Frank would like. :wink: If it is in your area, you are in the chips.

Now let’s even kick it up another notch - we just closed an industrial deal (the reason for my absence here lately) with this exact structure:

Negotiate your price

Go under contract with generous due diligence timeline

Get loan approval from your local bank - get board approval - this is important

Get estimates on your repairs

just before due diligence gets approved, state your case for additional negotiations down

Loan Board doesn’t want to re-meet on this loan

You close with the new negotiated discount as Cash At Closing

This is super powerful - and you are essentially closing with the lender “lending” you the repair costs.

Hope this helps.

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