As multifamily investors, our objectives are clear: increase income, and decrease expenses. That's because there is a direct link between the net operating income and the value of the property. So, the faster we can raise the net operating income, the faster we can realize our desired return.
What if I told you it is possible to reduce one of your largest expenses by as much as 50%? That might seem too good to be true, wouldn't it? Well, how about I up the ante and tell you it can even be done in as little as a few days and with little to no cash upfront? I hope you are still reading, because it's completely true, and I'm going to "spill the beans" on how to do it.
INTRO TO WATER CONSERVATION
Water is one of the largest property expenses. Most of us bill water back to our residents, though the rising costs of water and sewer can dramatically impact your residents' wallet and their decision whether to live at your property. Some multifamily property owners even have to cap the amount of the water expense they bill back to their residents just to stay competitive in their market. Why not capture that wallet share as income rather than putting it toward your water bill?
Water conservation is a simple concept. Replacing inefficient toilets and faucets with ultra low flow fixtures can reduce your property's water consumption significantly. But, it goes a step further by addressing bad plumbing seals or leaks, which can be wasteful and extremely damaging. Aside from doing your part toward sustainability, there are financial benefits to implementing a water conservation plan.
Consider this: if your typical water bill is $60,000 per year, and you are able to reduce it by 50%, you will have just increased the value of your property by $428,571—assuming a 7% cap rate ($30,000 annual savings divided by 0.07). Nonetheless, a qualified water conservation expert can help you size up the investment and opportunity for your property.
HOW MUCH DOES IT COST?
Any credible water conservation company will offer a free, no obligation assessment of your property. Using a scientific approach, they will be able to estimate the potential savings—both gallons of water and dollars in your location. The expert will also take your water provider's billing structure into account. For example, some water bills include fixed fees, which won't go down regardless of your consumption. This is an important factor to help you determine the pay-off.
Typically, you will also be presented with at least two different options for implementing water conservation...
- Optimize Existing Fixtures - this includes fixing any leaks, placing aerators on shower heads and faucets, and rebuilding the existing toilets. Often times, this option is the least expensive, and the water conservation company may be willing to share the savings with you—meaning there is no initial cash out of your pocket! Once their cost is recouped, you get to keep 100% of the savings. This is a nice option when you have a tight CapEx budget.
- Complete Toilet Replacement - this includes all of the above, but replaces all of the toilets on the property rather than rebuilding them. These aren't just typical toilets though; they are ultra high efficiency. Going with this option typically requires a larger CapEx investment, but the the benefit is you realize 100% of the savings immediately. And, though this is a more subjective benefit, your residents love getting something new—even if it is a toilet.
Every property is unique. so you will need to determine which option will yield the best results for you and your bottom line. Either way, they are able to get in and do their thing very quickly. For example, my 64-unit apartment complex was done in just two days, and I did complete toilet replacement.
FINDING THE RIGHT EXPERT
A simple search on Google will provide a list of water conservation experts in your area. But, if your property happens to be in Texas, I can save you the hassle, as I highly recommend Save Water Co. The company was founded by Katie Anderson, and I can honestly say I've never met someone more passionate about sustainability...and toilets! Not only are Katie and her team experts in water conservation, but I appreciate they continue to monitor the savings after their work is complete to ensure your savings are maximized.
- Regardless of the path you go, the average break-even point is within 12-15 months. But, if your goal is to quickly maximize your NOI and your property value, you will want to replace all the toilets.
- Many cities offer rebates or even free toilets. Katie and I have swapped many stories about the quality of a toilet and it's lasting impact on your property. For example, on average, the 1.28 gallons per flush toilets are using 2.0 gallons per flush. Free toilets aren't always the answer, especially if they are using more water than they designate. Consulting with a conservation expert will help save time, money and energy on making sure your property is installed with high quality products that will sustain your savings.
When you consider the benefits and that you can get started with little to no cash out of your pocket, I believe water conservation is something all multifamily owners should act on. So, stop pouring your profits down the drain, and get started today!
ABOUT THE AUTHOR
Mark Walker has been an active real estate investor since 2004, so he brought a wealth of knowledge with him when he founded Luxmana Investments in 2011. Though he started out as a part-time investor—holding a full-time job in high tech—he fully transitioned into his passion of real estate investing in 2015.
Mark now dedicates most of his time helping new and experienced investors build wealth through residential, multifamily and commercial real estate.
Learn more about Mark and Luxmana Investments at www.luxmana.com.