Mobile Home Park Mastery: Episode 46

Taking Control Of Water & Sewer Expense

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Water is a precious commodity in America today – it’s literally liquid gold. And water and sewer expense is the #1 largest line item in most mobile home park profit & loss statements. The great part is that it’s a turn-around plan that is 100% within your control and has no reliance on residents or market forces. But how do you do it? In this installment of our five-part series on “Easy Turn-Arounds” we’re going to analyze the methodology from A to Z on saving huge amounts on water & sewer costs and fostering conservation along the way.

Episode Transcript

What's water and sewer cost at your house? 50, 75, $100 a month? Multiply that times a hundred times or more, and you begin to see why water and sewer's such a large cost item in any mobile home park. This is Frank Rolfe Mobile Home Park Mastery Podcast and in this hour episode three of a five-part series on easy turnarounds, we're going to be talking about taking control of water and sewer in a mobile home park.

Yes, water and sewer is in fact the largest line item in most mobile home parks, and yet it's really easy to fix if you simply follow the methodology I'm going to go over, and that's why it's an easy turnaround. It's easy because number one, it's 100% science. Two plus two equals four. You can totally master your water and sewer if you use some common sense. Number two, it's totally in your control, you don't have to get any involvement from any of the tenants. There's no market issues like demand, or pricing, or competitive forces. Number three, the techniques I'm going to go over here have been developed from years and years of practice. We've been doing them for over 20 years ourselves, but we even learned about them for ourselves from moms and pops, who've been in the business even longer than we've been.

Let's start off with how you take control of water sewer in a park. The first item, are main line leaks. We bought a park in Kentucky a few years ago that was running $5000 a month in water leaks. That's $60000 a year. At about an 8-cap, you're talking about an impact on the value of that property by nearing a million dollars. How could you have $5000 a month of leaks and not be aware of them, and not fix them. Mom and Pop knew they had some leaks, but they just felt confused and overwhelmed with trying to find where the leaks were or repairing them. So many moms and pops have these large leaks, and they have some kind of urban legend, some kind of myth, that fixing leaks is nearly impossible so why even bother to try.

The truth, however is much more different than the fiction. There's a company called American Leak Detection. They're franchised nationwide, and they have their own patented technology where they bring out a sounding device, and it's like a giant stethoscope. It can listen to the hissing noise of water being emitted from a leak in your line, and it can tell you not only where the leak is, but it can even guesstimate the magnitude of the leak. All you have to do is have them come out and do their science to your park. It costs about $750, and then they will flag the leaks, and you go in, and you fix the leaks. It's not that hard.

One thing that really frustrates many park owners are they walk around looking for water pools thinking that's where the leaks are, but that's not how it really works. When you have a main line leak, you have very high massive water pressure, and that water often finds an outlet. There's subterranean rivers that flow under the earth, and they don't surface. You'll always have little puddles of water obviously if you have a leaking riser on a mobile home lot, but with those main lines which, are already often several feet below ground, it doesn't always go up. Just as frequently, the water actually goes down into the earth. They feel since they can't find any wet spots, that they can't fix anything, but the truth is you just gotta get to the next level up of sophistication.

Beyond main line water leaks, there are other kinds of water leaks. These are the leaks inside of the mobile homes themselves. The most common ones are the toilet flapper valve, and also sometimes the tenants have leaking faucets. Or in some cases we've seen, they let those faucets run 24 hours a day because they've lost control of how to turn on and off the handles. How do you fix that? Here's how you do it. You send a plumber around to the mobile home park at about 10 in the morning on a weekday. At that time, hopefully everybody has gone to work, and there's certainly no one taking a bath at that time of the day. What you then do is, you take off the clean-outs to each mobile home, and you see how much water is coming down. Obviously, any leak in that house will be evidence by water going down the sewer line at the main sewer line. You look for those leaks by looking through the clean-outs.

What you'll find are there's always, let's say in a 50-space park, you're probably going to have 10 or 20 homes that have water coming out of them while nobody is home and there's no water on other than the leaks. Some will be downright Niagara Falls hemorrhages of water. Here's what you can do. You can have a plumber go back to those homes when the folks get home at five or six o'clock, and tell them that they detected a leak in their home and can they come in and fix them. You can even just go in there and fix them for free. If they have to pay for it, they probably won't let the plumber in, but if you say, "I want to fix your leaks," they will let them in. That's often the cheapest thing you can do because when you fix those leaks, it turns off the massive water bill, and it's a lot cheaper to do that than it is to put in submeters which, we'll talk about in a minute. You can definitely find the homes that are leaking, and you can go in and then fix those leaks.

But, let's say you do American Leak Detection's survey of your water lines, and low and behold, they can't find any leaks. You go out, and you check the clean-outs, and there's no big leaks going on inside the mobile homes. What you have going on is tenant abuse. What happens in mobile home parks sometimes are the tenants, when moms and pops have been including the water and sewer in their rent, they just lose interest in conserving water. Why should they? What do they do different? They won't turn off the water when they go outside and play in the yard. They kids go out and they turn the hose on full blast, and they're playing along, it's hot out, they're having lots of fun, and then they just don't ever turn it off and let it run overnight. That's fairly common. Or, you'll have people go out and wash their cars over and over. They water the yard incessantly. Every activity they do is costing you, the park owner, a ton of money. The only way to resolve these kind of behav ior issues is by billing back water and sewer.

There's basically two methods in most municipalities that you have if you want to bill back water and sewer, and one is much better than the other. The bad one is called RUBS. That stands for a Ratio Utility Billing System. How it works is, you pick a constant. It could be a number of bedrooms, or square footage of the home, or occupants. Occupants is the worst one, it's not fixed. The number of occupants is frequently changing, but square footage, number of bedrooms, those don't change. You take the entire water sewer bill and you divide it by the total number of constants, then you multiply times each home's constant amount. For example, the one bedroom might have $30 of water sewer, the two $60, and the three-bedroom 90. That's the way the bill is broken up.

But the problem with this is, it does not foster conservation. Probably, it actually does the alternative because people are frustrated that they're paying the water sewer of their neighbor, and they just know that they've seen them abusing the water, so the very idea that they should be paying their prorated part of the neighbor who's so wasteful, that's just not very fair to most people, so that isn't a very good system. A far better system is to install submeters. The best of the submeters today come from a company called Metron. It's a European company, and they developed a lot of really cutting-edge technology. What they do is their meters are read every 20 minutes or so. That gives the park owner the ability not only to see what's going on and how much water's been used, but it can also alert the park owner to sudden leaks, because whenever the usage spikes up, it sends a notification that it spiked up.

We've been retrofitting our entire portfolio to Metron meters. We really think that's the future of the industry. It is so far superior to the old days of having the manager go around and read the meters because you always had a human error when you did that, and you also had issues where tenants would deliberately try and block access to the meter. Metron meter, they can't block the access, it's all done remotely. It's all done through the internet, and the readings are phenomenally accurate. Again, they're done every 20 minutes so they're very timely. We love the Metron meter system.

When you install meters and you bill back, here's what happens. Right off the bat, in the national averages, you get 30% reduction of water sewer rates simply by the conservations. The cause by people paying their own way. It's just a fact of life. Whoever pays the bill is the one who is the most proactively watching over what the expenditures are. You get a great boost in conservation right off the bat. The second thing the submetering allows you to do, is to drive out unprofitable customers, or at least make those unprofitable customers profitable. In many mobile home parks, when you install the submeters, in 100-space park, you're gonna find 10 people who are often spending, or nearly spending as much as their entire lot rent just in water sewer. What that means is you've been basically paying them to live there for the longest time. Clearly, if you're trying to make money, that doesn't work.

The next item is, that it allows residents to take control of their own destiny, and I think this is very important. In a world in which people are concerned about ever higher lot rents in mobile home parks, although as you know as we've talked about on the podcast, our lot rents are insanely low in the industry. The economist from Duke, Charles Becker, estimates our rents are 30 to 40% lower than they should be, so there's definitely plenty of room to raise the rents just to get them back to economically where they should be.

Nevertheless, in that kind of environment people always want to find ways to keep rents low. Here's one of the best ways. If the resident doesn't want to pay a big water sewer bill they just don't use a lot of water sewer, so they actually get to control their own budgets. I think that's really the only fair way to live. I really think that's the future of America when it comes to utilities. We're a country that is finally getting in sync with the whole concept of conservation, we're becoming a green country. How many solar rays do you drive by in wind farms? We're really starting to feel the necessity to take control of our usage of utilities and submetering does just that. It converts the resident from someone who doesn't care because it's a landlord's problem, into a resident who does care dearly, because it's now their problem and they have to pay for it.

Those are the basic ways that you can take control of water sewer. Have we ever seen a park where we couldn't? And the answer is no. It's simple science. The water has to go to somewhere. The water comes down to the city's water pipe, it goes in your property at the connection point, and everything after the connection point it can be quantified. It has go somewhere. It's either going through the main line and been delivered to the customers, or it's going through the main line and then leaking into the earth. When the customers get the water, it's either being put to good purposes, or it's being leaked out of toilet flappers and leaking faucets, and not doing anyone any good.

Finally, when you get the meters, it more granular detail tells them how much they're spending and they have the ability to control their own destiny. Really, water sewer is win-win for everybody. When you can control that coast and perfect it, and eliminate the waste, it leads to lower lot rents. How do you have lower lot rents in America going forward? One big way is for you to take control of your water and sewer. Again, that's one of our favorite easy turnarounds, because it is so quantifiable and so much within your control.

On our next episode, in episode four of our five-part series on easy turnarounds, we're gonna be talking about something that just seem silly but it's just true and that is how mobile home parks are often priced inappropriately. We're gonna talking about different mobile home parks that we've purchased where they were just priced wrong. Nothing wrong with them other than that. Good occupancy, good income, everything fine. But Mom and Pop just did not price them to market. That's coming up on our next installment on the installment four of our five-part series on easy turnarounds.

Again, this is Frank Rolfe of the Mobile Home Park Mastery Podcast. Glad you're here. Talk to you again soon.