Case Study: Water Bills from Hell
In our article The Anti-MHP Bootcamp we mention several ‘Cash Flow Killers’ that can destroy the profitability of a mobile home park. Out of control water charges are near the top of that list.
During due diligence, you’re probably scoping the water/sewer lines, their composition & analyzing years of utility bills. Hopefully, you see stable bills with minimal capital spent on repairing leaks and collapsed sewer lines.
It’s rare, but even if everything checks out, the pipes can still give you nightmares.
Case Study
This is an average sized park (~90 pads) within a decent metro. Our water was billed quarterly by the water district (usually around $16k for the quarter). We prefer monthly utility bills to avoid surprises, but this city was lazy.
The first couple years of ownership, nothing out of the ordinary happened. Utility bills were boring: just how we like them.
Then…one day we received a $60,000 quarterly water/sewer bill.
We weren’t sure what to think; clearly this was a mistake. This had to be a faulty meter or an incorrect read from the city (something we’d seen before). After nervously chatting with the water district, they assured us everything on their end was correct.
It was all hands on deck at that point. No time to spare as you could just feel the cash draining into the ground minute by minute.
We called leak detection plumbers to scour the park but they came back with zero, zip, nada. No leaks were found. We called a specialized leak detection expert who had a background in water engineering and plenty of theories but again, nothing. He too was baffled saying with a leak of this size all the homes should be floating by now.
Okkaaaaay, so what the hell was going on?
Was a pissed off tenant winding forward the master meter to mess with us?
Was a tenant keeping Shamoo in a giant water tank behind their trailer?
Was the neighboring park siphoning our precious resources like Daniel Plainfield in There will be Blood?
Over the next few months our park was visited by a revolving door of plumbing experts and civil engineers. They found several small leaks around a couple brittle lateral lines (connecting the water mains to the homes), but these leaks were a small fraction of the increased usage, which had quadrupled.
Most of our expert consultants were convinced we did not have major leak and that this was the city’s problem. Naturally, the city disagreed and wouldn’t let us monitor the master meter, which was locked in a meter pit.
After several weeks of lobbying, we finally convinced the city to install a remote meter reading device on their meter so we could monitor usage and conduct various tests. Those didn’t look so good for us so got the city to replace the old meter (this had to be the problem!). It was not the problem. Our pipes were the problem. Game over, pay the bill, do not collect $200 dollars when you pass Go.
That was a bummer day in mobile home park land as we knew we’d be writing a several hundred thousand dollar check. But hey, we’ve had 10X as many good days investing in parks so we were due for a hiccup.
Lessons Learned
Always assume your infrastructure’s on the verge of collapsing (okay - maybe not that bad) but be prepared to upgrade water & sewer lines if they’re the original lines. Don’t assume because the previous owner hasn’t had problems you won’t in the future.
It’s hard to play whack-a-mole on brittle PVC (or collapsing sewer lines). Looking back, we probably should’ve started the process of replacing sections of the park as the problem continued.
Once again, your onsite management is key to solving problems. Our manager wasn’t great - she always seemed to have issues getting the remote meter reader to work, would ‘call the plumber in a little bit’ and never really had the proper sense of urgency when our water bills went bananas. We should’ve replaced the manager much sooner to one better equipped to help us solve this crisis.
The City Water department was cooperative…to a point. They realized we were making a concerted effort to find a solution but ultimately we knew they’d have to draw a line somewhere. They weren’t helpful in the beginning, but we kept our cool and kept asking for their help. In the end they were very accommodating and gave us plenty of time to resolve and negotiate a reduced water bill settlement (FYI - there is a lot of profit margin in water, cities tend to reduce large bills for one off leaks if you ask).
Conclusion
It’s important to emphasize we didn’t find anything during due diligence to suggest the water lines were likely to fail. No matter how detailed you get during that pre purchase period, there are always surprises post purchase. Therefore, it’s critical to have a capital source to tap if and when infrastructure fails.
Happy Trails,
MHP Weekly