100 lot park, city water/sewer, your thoughts?


#1

I’ve been back and forth with mom & pop (off market) for about a month. This deal has a lot of moving parts, I’ll try to keep it simple:

  1. 100 lots, lot rent $250 (substantially under market)
  2. city water/sewer
  3. 100% occupied
  4. paved roads
  5. owner is willing to finance 100% of it at $5K/month for 20 years
  6. BUT, they want $3M purchase price. Right now park is realistically worth $2.1M before any improvements

Another major issue is, currently the entire park is land-leased to another guy (75 years old) who owns 70 (!) of the homes. I also talked with him and he wants to work out a deal where I manage the entire park for him for 15% of the gross income ($469K last year), and convert all the park owned to tenant owned homes (he wants to do this).

The $5k/month with the actual land owners (also 75 years old) wouldn’t start until the current land-lease is up, so my expenses for the next 7 years would be zero, I’d essentially be managing & improving the park that I’ll eventually own.

If I went for this deal, my plan would be:

  1. Get it under contract with actual land owner, air-tight where he nor his heirs can back out of the deal
  2. Then get a deal worked out with the current lessee to manage his park for 10-15%
  3. Convert all homes to rent-to-own (rent credit, etc)
  4. Gradually raise rents to market

The fruits of my labor won’t come into effect for 7 years, but then I’ll be cashflowing like a beast for the next 20 years since $5K/month won’t even be 1/3rd of what actual bank financing would cost. After raising rents to market (within 1-2 years) the park would be valued at over $3M. In 20 years it should be no problem refinancing at a bank.


#2

How do you get to $3M by paying only $5K for 20 years?


#3

You really need to put together (or share) the pro forma on this to see if it makes sense. How much does the master lease generate to offset your debt service, and can you adjust it annually or cancel it with notice? What are market rates? Does the lessee also have an option to purchase you could consider buying and executing instead of working with the land owners?

Need more information, but interesting stuff.


#4

Why won’t you profit for 7 years? You’re going to make money off every home that gets sold for the owner now, 70 times. Plus the base rate of over $70K. Plus the park is yours in 7 years… um… Do your math and trust your gut. Don’t plunge but don’t wait if it suits.


#5

This seems pretty intriguing, and I think you could get to a win-win. I’d definitely like to see a pro forma.