Making Money With Water Systems
Making Money with a Private Water System:
Sometimes there is opportunity in land development to go beyond subdividing and take advantage of other related opportunities to generate revenue. In this case a private Water System.
My client owned a 20 acre parcel that I subdivided into four adjoining 5 acre lots. The lots were outside of the area served by county water service, so wells had to be drilled for new homes. He created a state approved Water System around an Incorporated Water Company with 6 services, known locally as a 6 Pack. He used 4 hookups for the lots he owned and sold 2 to adjoining landowners.
How he made money
The 4 lots he owned were given a choice on each lot sale contract. Buy the lot without water at the stated sale price and drill your own well, or, buy the water service from the Water Company for an additional $15,000. All four lots were sold with each buyer picking the sure option at $15,000 from the Water System. The remaining 2 services were sold to offsite landowners for $15,000 per hook up.
Total Revenue - $90,000.00
What made it attractive to buyers
The area had deep aquifers below basalt rock, so all new wells in the area had to be drilled to extreme depths in tough conditions. Water quality was also a problem since the rock contained naturally occurring arsenic and there were salt water intrusion problems from rock fissures in the area. This meant that simply finding water didn’t mean having potable (drinkable) water. All the locals knew this, so it was pretty easy for them to decide to buy into the water system, with known quantity and quality testing, vs drilling their own wells and hoping to find potable water in sufficient quantities.
How we did it right
Knowing the real money in such a small water system was not in monthly service charges I worked it out so that the ownership of the incorporated Water Company was turned over to the actual users, in equal shares of company stock, plus the hookup share they owned, plus all of the responsibilities of the Water Company for on-going maintenance and state water system compliance. Preparing for transition, I also recruited the new President and assisted in the management transition.
What could have gone better
The cost of the water system permitting, construction, materials, infrastructure, holding tanks and water lines was forecasted and stayed pretty much on budget. The disappointment was the amount of time it took the state to approve it. This particular state had significant water application backlogs for water rights and water systems of all kinds, so it took over 2 years for approval. Nonetheless, even with the time delay the Water Company made $90,000 in revenue, plus on the land development side we avoided the cost and risk of having to drill individual wells.