I am considering a park in Kokomo, Indiana. I have exhausted my online resources to find information about Kokomo and was wondering if anyone has any personal knowledge about this area which would be helpful in assessing this location for a park.
Based on the metrics from best places, it doesn’t sound like it has a lot of potential. Metro population is under 100k as well as median home prices under 100k. 3 BR apartments are under 1k.
It’s possible that there is more to the deal than meets the eye, but if this is your first park, do you really want to take that risk? Based on the metrics alone I would pass and I would guess many others would too. That doesn’t mean it won’t work for you however.
Dominic is right, those metrics aren’t ones you want to see. The thing is though, most deals are good as long as you buy at the right price.
In this case, the cap rate should reflect the below-average market fundamentals. If your baseline is a 9% cap rate, and everything else checks out (utilities, etc.), perhaps this warrants a 10% - 12% cap rate. Cap rates are effectively a measure of risk and the market poses a higher risk than most.
Kokomo is actually in my backyard roughly 25 minute drive from my front door. As I have not invested yet I can only speak to the town itself. The majority of kokomo is lower income who can’t afford the rent rates on a 3br house so they tend to look for good quality parks but will turn away from anything not deemed “family friendly”
Couldn’t agree more. The 100k thresholds aren’t meant to be gospel. If I’m in a 50k MSA with median home prices at $90k, and can buy at a ~12 vs a ~9, I might even opt for the cheaper deal hypothetically assuming solid test ads. I can lose 40% of the homes/paying tenants (vs~30%) and still cover the debt. These are asinine numbers relative to other real estate asset classes.
Thank you for the awesome responses. Without getting too much into the details of the park, the price and the other factors seem to make it a good deal. It is a 10 cap if I bill back the water immediately (60 days or so in) and the new meters were installed last year but were never used to bill back. I figured I can take it from a 10 cap to a 22 cap in 4 years according to my calculations by rehabbing 3 homes and filling 3 vacant lots. I’m not sure at this point if it’s family friendly but it’s a nice, maintained, clean park with little maintenance required. It is seller financed. I have to agree with you that it will turn on the test ads which went out yesterday and so far I only received one caller who called 4 times. Before the newspaper ad went out, I received 6 calls in 6 days from Craigslist callers. Those numbers are not leaving me with high hopes. :(, Any other thoughts?
From my end the only other tidbit of information I can offer is I know there are 3 parks right across the street from each other. So the competition from park to park might also be playing a factor
After looking into Kokomo some more I see that the major employer is Fiat Chrysler with 6 plants manufacturing transmissions for worldwide distribution. They employ around 8,000. Should I be concerned about relying on Fiat Chrysler as the backbone for Kokomo, given the current state of the economy, and the decline of the US auto industry?
There are also some other smaller manufacturers, an aerospace manufacturer employing 800, a manufacturer of plastic flowers, a FedEx distribution facility with 40 trucks, a Coca Cola bottling plant, two hospitals, a satellite campus for a major university, superWalmart, Sam’s club, Target etc
Shelly, There is risk in everything. If the plants shut down, heaven forbid, there will be other jobs in the area the home owners in your park will find, or they will sell and move or whatever. If the place seems like a good deal, its cash flowing, and the numbers, etc look good it can a high probability it will be fine. Especially if you are fair with your land rent prices.
What did you end up doing?
Thank you for your response Barbra. I like it. I did decide to go to forward with the deal until I was informed of a bad environmental condition from the geologist. As disappointed as I was, I moved on.