Welcome to the Mobile Home Park Mastery Podcast where you will learn how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate mobile home parks! Your host is Frank Rolfe, the 5th largest mobile home park owner in the United State with his partner Dave Reynolds. Together, they also own and operate Mobile Home University, the leading educational website for both new and experienced mobile home park investors!
In a perfect world, all mobile home parks would be on municipal water and sewer. But in the real world, that's not always the case. There are some parts of America where you have no access to regular, what we call city water and sewer. And as a result, for the mobile home park to be built, they had to come up with an alternative. On the water side, that can be well water. On the sewer side, it can be septic or packaging plant, even lagoon. And when you have one of those utilities, you often dream about conversion, converting from your private status over to public or municipal status. But it's not always the right thing to do. There's many considerations you have to make before you go forward with that decision. This is Frank Rolfe of the Mobile Home Park Mastery Podcast. We're going to talk about all the different fine points of converting from private to municipal water and sewer. Now, the first thing is, before you jump right into this concept of conversion, you have to remember that every park is a unique creature. There's no industry more custom than the mobile home park business because it was all built mostly by moms and pops in a different era, 50, even 70 years ago.
And as a result, since these are all little sustainable terrariums, we have to make sure that your choice is the correct one for the community, for your investment, for the residents. So, you don't just jump into it. You don't buy a private water well and suddenly say, job number one is we're converting to city. It may be the best idea, but there is some consideration needed in doing that. Now, the first thing you need in order to figure out whether it's the right decision or not is is there municipal, public water or sewer access available? Because if there isn't, then there's no point in giving it any more due thought. So, if I am on water well, and I want to convert to city water, if there's not a main water line that contains city water near me, that it's probably not going to happen because the cost would be excessive to try and bring municipal water or sewer, typically, to a park. Almost all the conversions we've ever done have happened because over the years the city extended out their water or sewer lines where there was a connection point possible that wasn't that far from the property.
So, the first thing is, is it even there? You can't just magically have that connection capability. And the next question is going to be, you know, what is the all in cost of making this connection? Because there are a lot of things you need to know about connecting water and sewer to the municipal access that you may have not thought about. The first one is it's really expensive as far as engineering. They really rake you over the coals on engineering, and as a result, it can add on tens of thousands of dollars to the project. Just the soft cost of having one or more professionals tell you, yes, it is appropriate. And most of that is, of course, stemming from the utility, not from you. You don't care. You just want to connect. But you have to go through their methodology with their experts, and there's a lot of padding that goes on in it. And as a result, that can add on a lot of money. And then another one most people don't think about are tap fees. Now, not all cities and counties have tap fees, but some do, and they can be very excessive.
It's not uncommon, for example, to get a $1,000 tap fee. And again, what a tap fee is, that's an amount you pay one time only for basically the ability to connect. It's kind of a service fee that they charge just for you to have the right to connect to their utility. But in some spots in America, in Colorado, for example, it can be as much as $25,000 of tap fee per lot. That's a lot of money. And then, of course, you have the physical connection itself, which is often a lot more than what you thought. Just simply connecting a water well to municipal water, which doesn't even have to be a long distance. The actual connection may cost doing it the way that the city requires you to do it. That might cost $25,000, maybe even $50,000. So, when you add it all up, connecting from a private utility to a city utility is never inexpensive. It always is a pretty hefty price tag. So, you need to think, okay, can I afford that? Is that even in the budget? Do I have the capex money laying around to do that connection? So that's question number one.
Question number two ties back to what Benjamin Franklin said back in the 1770s, which is it's not the price to build the fireplace, it's the price to keep it stocked with wood. And what I mean here is, it's not just the initial cost of connection, but it's that recurring monthly cost that you're going to get from the city sewer or water that you didn't have when it was private. For example, if you have a septic system, what's it cost you every month? Probably nothing. Annually or maybe semi annually, you might have to pump the septic tanks, but the rest of the time, you don't really have any cost. Sewage goes into the septic tank, it leaches out into the ground, and there's not even an electricity bill on that. But now when I convert that to city sewer, I have a monthly sewer bill that can be pretty large. How large? Well, if you assume maybe in some parts of America the sewer might be $50 a month, then it means if I have a hundred space mobile home park, it might be $5,000 a month, $60,000 a year. However, back when it was on septic, it was zero.
Can I afford that $60,000 a year new charge? So, it's another big consideration of doing it. However, if you go ahead and decide, you know what, I can afford the money up front and I can afford the monthly cost. Let me tell you how the actual conversions work. On well water conversion, what happens is you go ahead and find any piece of the city's main line that is approximately near your main line, and you simply build a connection between the two because water thankfully is pressurized.
So all you have to do is tap into the line, they'll put a valve on there, and then on the day of connection, they'll turn on the valve to the municipal water while you turn off the valve that comes out of your well. It's a very, very simple process. Very, very, very low stress. Your tenants don't even know you actually did the conversion. So, well, water conversions, other than the price of doing them and the recurring monthly price, there's not a lot to it. So, those are pretty easy to do. Now, packaging plant conversions or lagoon conversions are similar in some attributes, but yet very, very different.
When you convert over a packaging plant or a lagoon, your sewage is coming to a common collections point, that's the good news. But the bad news is typically that the actual city sewer line sits above your mobile home parks collections point. And sewer only works through gravity. There's no pressurization. It has to flow downhill. So, now you'll have the laborious engineering required to get the sewage from a lower point to a higher point, and that comes back to a thing called a lift station. So, at a lift station, what happens is your sewage goes into what looks like a big concrete shaft, and then there's typically one or two pumps that then blow that uphill. And you guessed it, those are not inexpensive. That packaging plant connection now is going to have potentially this lift station that's mandated, and the list station might be $100,000 right there by itself. Also, the pipe on sewer is larger, the engineering is more expensive. The whole thing is much more complicated when you're on a gravity fed system, as opposed to pressurized, yet it can be accomplished. But if you have septic, you have an even bigger problem. You do not have a common collections point.
All you have is all these various tanks around the park. Some tanks may have two homes on them, some may have three, some may have four or more. But you got to bring all that into one, one spot. And that means you'll, yes, you'll probably have to relay all the sewer pipe in the entire park just to bring it to a common collections point, which probably will then have to go into a lift station to get it over to the city's main line. So, those sewer connections are much more complicated and much more expensive than well water. And you might say, well, then why would I even do it? Why, if I have a septic system, would I go through the expense of creating a new common collections point, perhaps a lift station, to get it up to the city sewer? Why not leave it as septic? And that's a very good point. Because typically, if you really look at the dollars involved to convert these systems and what the monthly cost would be, a lot of it's going to hinge around whether it's working or not. If you have a fully functioning septic that's giving you no grief at all, then why would you convert? And that's why there are mobile home parks in America that have access to city water or sewer right out in front, and yet they stay as private utilities.
A lot of it goes with the connection. A lot of it also goes with just the amount of worry, because when you own private utilities, you will to some degree always worry about them. That just goes with the territory. So, sometimes people say, well, even though the system's running well, I want to go ahead and convert it over anyway, because, gosh darn it, I just don't like to have to worry about it anymore. And if you can afford it, and if that's the case, well, so be it. Other times, people want to go ahead and connect from private utility to city utilities simply because they think it enhances the value of the park, which it might. If you have a really large, nice property, you probably get a higher sales price from a buyer if it is on city water and city sewer as opposed to private, because most buyers prefer that. So, that's another reason you might do it. And then there's some degree of confusion with some park owners when they talk about doing private to municipal connections regarding electricity and gas.
Let's go over that for a minute. When you have what is called a master metered electric system, which means that you are the power company, you own all the lines, the transformers, everything. The power comes a single big connections point outside your property, and then you own everything past that connections point. It was a common way people built mobile home parks back in the 50s and the 60s, but it's the same power that you get from the power company. So that's not really a conversion from a private to a public. Instead, it's more a transference of responsibility. Because when you change the master meter electric system back to where it's directly billed by the power company, they own all of the equipment, they are responsible for the system. So, you don't necessarily have to rewire the park or make any kind of different connections. Sometimes you do, but not always. But it's very hard to get the power company to agree to do that type of thing because they really, really don't want to be chasing after all your individual customers when they can just send one giant bill to the park owner and you pay it.
And they may require some fairly sizable changes in the power system, which they would have to bear the cost of to get the job done. So normally, to get those converted, you'll have to pay the power company to take over the system. We had a system like that in Texas that we were able to convince the power company to adopt, but we had to pay them about $150,000 for the pleasure of them adopting the system. And then you have natural gas, which can also be sub-metered. Now, natural gas is a different kind of thing because typically the gas company will not take over your system. Your system and the way it's put together and the condition of your lines and everything else don't meet their specifications. And that's why I can't really give you an example ever of a natural gas system that was master metered ever being successfully converted to one that's directly built by the gas company. So, typically those are off limits. But the bottom line is, whenever you're thinking of converting a utility over, the key item is thinking about it. You need to put a lot of thought into it. You need to find out all the costs, some of which may be hidden.
Cities are notorious for not even discussing tap fees until you're about to connect. And then they spring upon you. Ah, yes. Now, of course, before we connect, you'll have to give us the tap fee. So, some things are somewhat hidden. Some are obvious, some you may not have thought of before the podcast here, such as the necessity of the lift station. But you got to get all those costs out there in front of you, and you need to eyeball that project to say, do I really need to do this or do I not? Because if your private utility systems are in good order, you may elect not to make the connection. It will always give you greater peace of mind if you have the option, if it is out there ready to connect. But in large parts of America, you can't ever connect. If you have hilly terrain, for example, there's no way you're going to get sewer lines laid up over the mountain because it's all gravity fed. The bottom line is every mobile home park is unique. Every decision, therefore, is completely custom. There's not one size fits all when it comes to these conversions.
And if you make the appropriate diligent steps to find out what the costs are and what the condition is, then the answer will be very clear to you. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.