Brief background on me, I am in the finance industry but I’m looking for something with more flexibility and equity stake in a business. I have spent the last six months reading this forum and others, reading Frank and Dave’s books as well as meeting with REI clubs, attorneys and CPAs. I feel like I have a pretty academic understanding of the business but I won’t really learn unless I take the plunge at some point.
Here are the park details:
Location: Georgia
Cap: 14%
Lots: 15 (I’d like to start small without any partners for now).
NOI is around 45,000
Haven’t discussed financing much but I already confirmed he will finance a good portion of loan.
Pros: 100% occupancy(could be a con I guess, not as much upside)
- Water is not sub metered, owner is paying over 5k/year. Easy fix.
- About 30 dollars below market rent per lot. I think I’d start with 10 dollars per month + bill water to them.
- City water
- Park looks to be in decent condition based on pictures of every unit.
Cons:
- Rural area, but I placed a teaser ad on Craigslist and received about 2-3 emails per hour.
- Individual septic tanks.
I am just wondering if anyone sees anything glaring that I am missing. I’d like to tie up the park and start due diligence pretty soon. These are just big picture details. I want to make sure all of this looks good before I move forward. Thank you.
Whats the purchase price? and the lot rent? And are they all tenant owned home or Park owned homes as this makes a huge difference with expenses.
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You said NOI is $45k but this is exactly $250 per lot ($250 * 15 homes * 12 months). That sounds more like the gross unless lot rents are $400+ in this “Rural area” of Georgia. It also sounds like 100% collections guaranteed. This is never the case!
At $45k gross, you are talking a different value than $45k NOI. You didn’t mention a purchase price but I’d imagine $450,000 is way way too much (10% cap on $45k NOI as you stated).
$300,000 is $20,000 per occupied lot. Is this realistic?
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@groenerm purchase price is 270k retail. About half are park owned.
@Brandon I hope my post did not imply that I thought 100% collections was going to occur. I double checked and the pro forma shows 61k net income, 22k expenses with an NOI of 41k(my mistake). No I don’t think the pro form is the same as actual, I just want to know if he’s in the ball park before I put under contract. When I put out my teaser add I priced a 2/1 trailer for rent at 500 and have had over 18 messages since 9 am this morning. 270k is 18,000 per lot.
Any thoughts are welcome and I appreciate your questions.
As @groenerm said, what’s the lot rent? You are in the right ballpark at $18k per lot. 15 (about half are park owned) means some of $270k is going for ~7 homes @ ?? $10k per home (if that is what they’re worth?) and $200k for the 15 occupied lots?
Or $270k for the 15 occupied lots and another $$$ for the ~7 homes?
In any case, the price seems all right for a starter but you have to get a handle on expenses. In my experience, smaller parks have higher expense ratio so expenses of $22k on $61k gross ($39k NOI) seems low (NOI seems high). You might be at more like $20k NOI which makes a $200k for the park and $70k for the homes a 10% cap, not bad.
Point is, the numbers are not outrageously wrong, they’re in the right ballpark. Only you can decide if the return (expected return) is worth it.
Brandon@Sandell
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Avg lot rent is $380. I will check about the POHs being included in price. Thanks for bringing that up. And I thought the expenses seemed a little low too. I will definitely check into that some more. Thank you for the input