A little history. Been a SFH and some multi & commercial investor for almost 20 years.
I have been interested in buying a park for a while, have looked and worked on buying a few. Some were low priced but disasters, and others in decent shape, but couldn’t come to terms with seller.
I have now found a park not too far from me. Some details:
Total lots: 55
Occupied 51
Lot rents: $150 month
Taxes: $7600 year
Insurance: $800 year
Water paid by park: $1000 a month (average for the whole park, no sub-meters)
A smaller rural town in upper Midwest. VERY stable economy. (no growth, no loss of jobs/population) I am very familiar with the community.
Gravel roads, city water/sewer
Mix of older homes in fair condition, and some newer homes in a newer portion of the park.
Rents are at least $100 low (possibly $125). This is in comparison to parks in the closest town not too far away. The local rental market for new apartments is 3 bedroom: $900-$1100. Older apartments 3 bedroom: $600.
Met with sellers (Mom & Pop). Ready to retire. He said 1 MM (who doesn’t want a cool mill). I know this is way too high, but told them I would look things over, and come back to them with an educated offer to help them understand the true value of their property.
I would be borrowing equity from another property for my down, and some cash. So debt service would be 90-95% of purchase price.
Interesting deal. How many of the homes are owned by the Park, and what condition are they in (e.g. what do you expect the total market value of them to be)?
All tenant owned. Some older tougher units and some newer units.
Fairly well ran park.
Also includes a small rental home on the edge of the park, and the owners have a newer nicer home in the middle of the park both of which would be included in the sale.
Is this a seller finance deal?
If so see what they’re looking for in terms of monthly income and for how long, then you set the terms.
Say 10% down with 20 years of payments.
(Purchase/mortgage/rate/mo payment)
A) 600k/540k/6%/$3870
B) 798k/638k/5%/$3870
C) 1M/900k/0%/$3750 (principal only payments)
If they only want to hold a note for 5 years then C might not work.
Interesting financing ideas JD. This post went quiet a couple of months so either buyer moved ahead or passed. If sellers are retiring as commented, i think 20 year terms would have been unattractive, but I always like entering a deal with some options as you propose.
Any other ideas on this park? It would really fit my needs for my first park. It is close, full, well ran, and rents are under market.
I don’t want to over pay for a park, but it seems everything else I have looked at has issues like high vacancy, management problems, and is far from where I am .
I would feel more confident about a park farther away if it wasn’t my first.
Maybe a lease with purchase option. Seller still get a monthly payment for X years. You raise rents and make income and have a buyout option at some point.
I don’t know what state this is in, but since you asked for ideas…
You said the rents are $150 per month there but market supports $250-275. Under that premise the park is worth somewhere around 900K if you were to raise to those rents immediately and also start passing along the utilities (after another investment installing submeters).
This is not something fun to do (ever), especially if you are a local owner / operator. But it’s the only way to make the economics work and convince a bank to go through with the deal at the price they want if you’re aligned on an acceptable CAP rate and return.
Under this approach you’d be somewhere around an 8 or 9. For a park without an MSA I would consider this a premium. But if there are opportunities to expand the park, or it fits a broader strategy with investment synergies then you may be able to justify it. I am always more inclined to pay a little more for something local since the risk is less (I know the market and city ordinances), have contractor crews ready to go, and can intervene myself quickly if something major happens.
Corbay.
I think your seller may be pretty close to the actual value. ASSUMING that you are willing and able to raise rents to $250 from the current $150 (which seems very low). There are variables here I do not know, so take my numbers with a grain of salt.
I use an Excel template for valuing parks (I own two, both similar in size to what you are describing). When I plug the numbers in, best guess filling in the blanks, I get an “As Is” value of just $550K, but up those rents to $250 per site and you are in the $1.1 million range. With $250 lot rent, it is a 10 CAP with a 28% cash on cash return - assumes 10% down and $40K in closing costs and improvements as may be needed. Parks are going up in value and CAP rates compressing, as you are likely aware, so I don’t think this one should be dismissed without further review.
I tried to cut and paste the Excel table below, but it does not appear to format properly with this forum page. At least you get a feel for the numbers I used.
Yearly
Tax
Taxes:
$633
Bank/Credit Card Exp
$20
Taxes:
Year
Insurance:
$67
Office Rental
$0
$7,600
2018
Utilities:
Electric
$70
Vehicle/Rental Expense:
$75
Yearly
Utilities:
Water
$1,000
Accounting/Legal:
$125
Insurance:
Utilities:
Sewer
$0
Supplies
$50
$800
Snowplow
$100
Advertising:
$50
Telephone:
$0
Grounds Keeping:
$100
Payroll Expenses:
Taxes (Pers Prop/Other):
Trash
$0
Site Property Mgr
$150
Cleaning, Repairs & Maint
$500
Reserve
Licenses:
$300
$2,170
$1,070
Value @ CAP Rate of
10.0
$1,116,598
CASH FLOW ANALYSIS:
Monthly:
Yearly:
Total Expenses:
$3,240
I was like you in my RE investing history, the purchase of the parks over the last few years were “life changing” events for me (for the good).