Seller bills water back to residents. Is that income or am I double counting?

Question

48-lot park, city water on a single master meter, no submeters at the pads. The P&L the broker sent shows water/sewer expense of about $1,900 a month and a separate line called "water income" of about $1,400 a month. Somewhere I read that billing water back to residents is basically free money in this asset class, which made me think I should be underwriting the full $1,900 as recoverable. But then I don't understand why the seller only recovers $1,400 if he's allowed to bill all of it. Is the gap just people not paying, or is there something in how billback works that I'm missing?

Rena Guide · Accepted Answer

The gap is real and you should expect one. Master meter means the utility sells water to the park through one meter and bills the owner, so the whole $1,900 is your bill regardless of what you collect. Billback is how you get some of it back from residents. There are two common methods. Submetering puts a small meter at each lot and bills actual usage. RUBS, or ratio utility billing system, divides the master bill among lots by a formula like occupants or home size when there are no submeters. Which of those you're allowed to use, and whether you can add an administrative fee on top, is set by state law and sometimes by the utility, so check your state before you assume anything about the number.

Why $1,400 and not $1,900: vacant lots have no one to bill, some residents don't pay, and any water lost between the master meter and the homes is unbilled by definition. That last one matters most here. In an older park a big spread between water purchased and water billed usually means leaks in lines you own, and those lines are under roads. Ask for 24 months of master meter consumption in gallons, not dollars, and see whether it drifts up.

Underwrite recovery at what the seller actually collected, not at what the lease permits. If you're considering adding submeters later, budget a few hundred dollars a lot installed and confirm existing leases allow the change in billing method.

paulgrant17 · Answer

One thing I'd want in the lease before closing: if a resident pays lot rent but skips the water portion, is the water charge treated as rent for nonpayment purposes or as a separate debt you have to chase? I've seen that go both ways depending on the state, and it changes what your collections actually look like.

laurenkim53 · Answer

Most of the rural parks I look at are on a private well, so there's no billback at all, you just eat the pump and the power. The bigger number in those older ones is master metered electric, some of the 1970s builds still have the whole park behind one meter with the owner's name on it. $1,900 a month for water on 48 lots would be the easy version of my problem. Worth asking whether the electric is individually metered to the utility, because converting it is a real trenching bill, not a billback tweak.

Seller bills water back to residents. Is that income or am I double counting?

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