First post here. I attended MHPU in Orlando a couple years ago. I’ve invested passively in some of the funds but am wanting to buy a park or two and get into ownership.
One of the main advantages I see to owning a park is the incredible inflation hedge they provide. I was just wanting a few of you all to make sure my math is right as the numbers can look quite interesting.
I’ll use a simple example.
Let’s say you buy a 100 pad park with $200/month lot rent at an 8% cap rate for a purchase price of $2,100,000. (I’m assuming a 70/30 rent to expense ratio).
You put 25% ($525,000) down at 6% interest fixed for 5 years (amortized over 10).
So your debt service is right around $70,000/year. So 1st year numbers look like:
$70,000 debt service
$98,000 cash flow for a cash on cash return of 18.5%. Now in years 2 and 3 you bump the rents a modest 5% per pad or $10/month.
This raises overall park net by $12,000 per year. Expenses should stay the same roughly right? Provided your interest rate is locked in for a while I would think this would all go to net and push your cash on cash returns to 21% and 23% in years 2 and 3 (and on up from there).
Even if you allow for a 5% increase on the expenses at the 30% expense margin ration you’re still coming out way ahead.
Anyway, I just want to be sure I’m crunching those numbers right. Any help is appreciated. Thanks!