Water question regarding 10 unit deal

[Jeremiah H.]

I looked at a 10 unit today, 5 duplexes on the same property. While viewing the property I noticed there is a well. After receiving the P+L statement and financial analysis I've determined the property owner is giving water to the renters at no additional charge. He is below market rent on average, without factoring in that he's giving water away. He's paying $450/year to have the water tested and $40/month for the electric on the pumps, for a total of just under $1,000 a year with no return.

Has anyone had experience before with buying a property and including a water charge moving forward? I realize this will be difficult with current tenants and I'll honor any existing leases, but I'd prefer to move out most of the existing tenants anyway. I believe cleaning up the property and getting out some of these tenants will allow me to get $50/month on average more per unit as well as start charging for water. The minimum water bill in this town is $63. I believe $50/month would be an acceptable rate for future tenants and they would be happy with that compared to having their own water bill. 

Charging $50/month per door would result in $6,000 additional revenue per year not factoring in vacancy. Using a 10% vacancy and a 8.5% cap rate (the going rate and price of this property), wouldn't that add an additional $65,529 worth of value? 

$50 x 10 units X 12 months = $6000 X 90% occupancy = $5,400 X 11.76 (8.5% cap rate) = $65,529

Is my thinking flawed?

[Russell Brazil]

I think it would be easier to just build the water cost into the rent. You can't really charge them for water unless you meter the units...which is likely not going to yield you much ROI. I would simply bump the rents as the units turnover.