Individual Metering Conversion

[Michael Hooper]

I'm looking at getting around 30-40 unit apartment complex in Cincinnati, OH. It seems that almost every complex in the area pays for water. Does anyone have experience switching a property, if possible, in this area, over to individual water metering? Should I offer to decrease rent with the change? Will I experience a mass exodus? Thoughts?

[Jonathan Twombly]

@Michael Hooper

I would approach this question in two parts.

First, are you allowed to pass on the cost of water to your tenants (other than through higher rent)?  If so, then this is the cheapest way to do things.  You don't need to expend any capital

If not, then I would ask whether I would get a return on the investment.  Water is one of the highest expenses you have, and the water companies are constantly changing their rates.  In addition, sometimes they bill bi-mothly and it can mess with smoothness of your cash flow.

Let's say tenant water (not common area water) is costing you $10,000/year and it costs you $25,000 to individually sub-meter. That's a 40% return on your investment. If I could guarantee myself a 40% annual return on money, I would do that deal every day of the year. Where else are you going to get that kind of ROI on anything? Over ten years, you've made 3x your money and gotten your original investment back.

Why not do it?