14 cap rate, but seems expensive


#1

This is a subdivision of 9 individual parcels. Each parcel is .4 acres, and not possible to add more without spending lots of capital to meet city guidelines of a park. It’s a really nice setup, and well ran. Wooded and spacious, just a little far out, but only 10 minutes from the interstate.

Sales price is 600k
9 units rent average $900
Expenses are just lawn water taxes insurance 15000
Gross income 97200
NOI 82200

The cap rate of 14 works but is valued at 66k per unit.

I know I probably could recreate this for 420-500k but it would take me a year, or two, and have to find the best deals. With the time it would take to develop this, I can justify the extra expense it’s just hard to pull the trigger on it. It would really jumpstart my portfolio but at the cost of debt.

Any thoughts, or words of encouragement?


#2

I would calculate the value of the property capping only the lot rent, and then do a one-time market valuation of the homes. Speak with the bank you plan to use and whether they will loan against the lot and home rent (or only one of them) as this will determine your ability to close at the negotiated price.

And where are the expenses to maintain the homes? That should be 15-20% right there. I suspect more is missing from the calculation.


#3

Expenses as listed per MLS
Insurance 3600
Utility 1344
Taxes 2500
Maintenance 4200
Other 3600 may be lawn/road
Total is 15244

Once under contract all numbers will be confirmed.

I can see from tax records that taxes are 15% higher 2880, so all numbers could be off.

there is no scheduled maintenance on the homes, maybe wash once a year. There no doubt will be unforeseen repairs and vacancies, but you don’t put that in cap rate, do you? If so, doubling expenses to 31k including vacancies, repairs, 2x utilities would put it at a 11 cap rate.

I would estimate lot rent as $350x 60m 189k
And each home at 29k x9 261k
Total 450k
Cap rate at 450k and most aggressive expenses including 10% vacancies and 10% repairs is 14.7

Was appraised a few years ago at 550k before 20k homes flooded in our parish, and these were not one of them. They are pulling value from that.


#4

I always price Parks how I run them and maintain them now how the Seller does.

Are these 9 homes brand new? You could reasonably sell them for 30k without the land? I have never priced a used home more than 20k (and more commonly see a blended average of 5-10K) but maybe this is a special market…


#5

It seems you are purchasing a rental portfolio. If you have nine separate parcels, this would not be a park.


#6

@jhutson wholesale would be 25. They are on average 10-15 yrs old. I’m looking to buy one now for another property and can’t find one for less than 25 that’s moved skirted and AC.

Best deal I saw in a while was 14k, maybe I can give her 12, 3k to move it, 3k in repairs, 1500 for skirting/ext repairs 2500 for AC so 22k, I see lots advertised for over 30,not sure what they sell for.

30 is generous, but some value is added since they’re already there.

Local trailers on .4 acres sell for 65k regularly on the mls, but more of a neighborhood setting, but not necessarily better.


#7

Think only about what it would be worth to someone purchasing it “as it sits” without considering moving and other ancillary expenses. My last mobile home purchase was listed by the Seller for 12K, and picked it up for 3K. Made 15K of repairs and it’s like new now (was sold new for 60K back in 2000), but my point is that list price is usually never the sale price.

I’m not suggesting that your valuation is incorrect, but I would have a very detailed inspection done on each home and also talk to some local Lonnie dealers in the area to get a firm grasp on market rates to make sure it’s correct.

Good luck!


#8

that is really why I’m here, because it’s hard to justify the higher price, but at some point the net income justifies the sales price right?

It is new to the market, so that is not in my favor. I did offer 512k but they countered at 595k


#9

They should have accepted your offer without batting an eye. With 9 park owned homes there will be an expense ratio around 50% or more (if you run it right), and until you know the real value of each home you shouldn’t proceed.

Bet you a buffalo nickel that it will be on the market in 6 months.


#10

I agree with everything you are saying, except not sure about the 50%. Of the units I own, most are lease purchase. But the ones that are rentals, I haven’t had much expenses maybe clogged drain or broken AC. I just want it to work so I can move into an opportunity making 4K a month, that’s after the bank note.

50% or 50k on expenses? Would be close to 4K a year on each unit. Like you said you can totally renovate a home for 10-15.

No doubt it’s worth 450
Well at least now every day she can think about how she could of had 512k


#11

Be careful on this one. You sound very eager to make this happen, despite jhutson pointing out some potential (and likely) red flags. Slow down and dig deep on the due diligence. No, you don’t want to lose on the potential of clearing $4k per month, but you also don’t want to make a mistake and find yourself LOSING $4k per month.