Hello, I've been researching MHPs over the last 6 months or so. I'm looking to buy my first one. I came across a small park very close to me that profits $14,000 / year.
The owner is willing to seller finance at an initial investment of $20,000 by me. Price of $125k for park.
This would be a 70% cash on cash return.
(1) Am I calculating that amount correctly?
(2) What is the average cash on cash return you guys experience? $1 return to every $5 is 20%, right? Which would take 5 years to recoup your original investment, right? Trying to warp my head around that.
Additional details of park:
-10 pads at $125 each, no POH - this is an opportunity to increase pad rent too.
-Expense ratio is <5%. All utilities billed to tenants. All he does is pay for city permits & grass. What expenses am I missing here? Taxes of course. What about insurance? Is insurance necessary? No manager necessary. No park-based utilities either.
-11.2% cap rate (14,000 / 125,000) = 11.2
-number of occupied lots x lot rent x 70 = $87,500
Question (3) $1250 (lot rent) X 12 (months) X .05 (expense ratio at 5%) X 11 Cap rate = having hard time coming to a number? If I took the profits for a year (after expenses) - $14,000 x 11 cap rate = $154,000
Looking for some help in my valuation & cash on cash return.
Thanks for helping a beginner,