Im looking at a 100 space park, all tenant owned homes with all utilities billed back.
I have expenses coming in around 85k.
Yet, this is 20% of my gross income with lot rent being $350. Am I missing something here?
The expense ratio seems low yet Im not sure what expenses I could be missing? If anything I have added in extra cushion for Utilities, Taxes, R&M and Cap X.
I think your expense ratio is low because the the revenue is high (high lot rent).
I would confirm that the utilities are not included in the lot rent and are billed and collected for separately. Also, confirm that your taxes will not increase as a result of the sale. If the park is in the North/North East you may want to add an expense for snow plowing.
Right, thats what I figured. This park is in Az. A turnkey park in great condition. No clubhouse or amenities.
Current expenses are listed at 65k. I have them at 85k. Yet, still a 20% expense ratio off of the lot rent.
Every park is different, but I think your insurance and manager numbers are too low. If you carry liability, loss of income, EPLI and workmen’t comp I think you will come in at more like $6,000+ than $3,000. A typical 100 space park, including all payroll costs, will be more like $24,000 (including housing) than $12,000. I also think that the mowing will be more like $6,000 than $3,000, but that depends on the amount of common area you have to mow, as well as number of vacant lots. Finally, the property tax will be more like $30,000 if this is a 1% state (assuming $3 million in total value) and twice that in Texas.
That should take you back to a 30% expense ratio roughly.
Be sure to put in some vacancy loss and bad debt. No property has perfect collections and at least a 5% loss should be expected on any rent you collect or utilities you bill yourself. The fact that you are already doing this on the utilities and building in some legal tells me you are anticipating some collections loss, so you should take it out of the revenue as well.
Insurance looks low. Our liability seems to run slightly higher than about $40 per lot. I’d change this to $4,500-$5,000
I would also build in a little more on the on-site management. You are doing $10 x 100 lots x 12 months and this is fine, but are you not also going to offer free housing? Additionally, our model offers manager incentives based on collections performance and leasing so we build in enough on this number to more than cover those. I use $15 per lot to be on the safe side. In essence, I would put the management closer to $22k (including the housing).
Landscaping: I don’t know a thing about Arizona, but $3k seems a little low. I guess if you have nothing but sand and no snow, you really don’t have to worry about this stuff as much.
R&M looks a little tight on a 100 lot park. It doesn’t take many sewer clogs and pot holes to hit this number and you’ve probably got over 200 people living in there. 2.5% of gross rents seems unrealistic. It should probably be at least double.
Trash: Gotta build back a collections loss on trash. Unless it’s direct billed
Electricity: You don’t own any homes yet, but you will at some point. The power will be in your name while you get it sold off. Also, are there no street lights in this park?
I certainly believe there may be unicorns out there running at 20%, but I’ve yet to see one. If I were you, I would scrutinize this thing as hard as you can to find where the hidden expenses are. You may also need to consider that the seller isn’t properly maintaining the property in an effort to get a better price. Basically, not paying for anything this year to achieve a magic NOI. So, look back through his operations as far back as you can to be sure this isn’t happening.
Park is being offered at a 8 cap. More like a 6.5 cap off of my numbers. With some room for upside.
I will discount vacancy loss and bad debt from the revenue.
For the expense side I will budget more for:
Trash/Electricity/Utilities. 15k
Insurance 6k
Management. 24k 100 per lots, plus homes, plus bonuses.
Landscaping is very minimal, with just a few local plants and rocks. 4k
The manual says R&M and Cap X typically runs $50-$100 per lot depending on the age of your park.
I have given it $100 for both R&M and Cap X. I thought I was being conservative.
You really think it should be more like 20k for both?
If this is the case than I should be budgeting $200 per lot for both R&M and Management?
On a side note. Every time I come back to my broker with my personalized expense reports, they act as if Im crazy. I bring it to you guys and you tell my Im too low. Love it. If you know of any brokers that truly understand the expenses when it comes to parks please send me their info.
We use $100 per lot on an older park (pre-PVC) and that works fine most of the time. But every park is different, so talk to the city inspectors on past reported problems with water and sewer. Talk to the current plumbing company that services the park. Water and sewer problems is where 99% of the R&M cost comes in – mostly Roto-Rooter.