Indiana park evaluation


#1

Hay guys, I’ve been evaluating a park in Anderson after tying it up. My last day of DD is 29 March and I am thinking this is something to walk away from. 40 spaces that actually looks like 37 since they have taken 6 spaces and turned them into 3 spaces with larger homes. 12 occupied including a quality mgr and 2 deadbeats so that is 9 spaces paying. 6 abandoned homes with one being a meth lab so that is 5 abandoned. the gas is direct billed the water is master metered but not billed back, the electrical is master metered and billed back. Electrical inspection was yesterday with the city inspector and an electrician, cost of fixes is above $80k for the park but can be done over time. Craigslist and newspaper adds show 4 calls a week. I’m doing my best to keep emotion out of the deal but the work on the due diligence makes me want to give it a try but my money side is thankfully more in charge of the situation. Your thoughts are welcome.
By the way the Manager has the ability to make things work but was never given the backing to do her job.


#2

Four calls per week is really really slow demand. You should be getting 4 calls per day, or more! Either your ad needs tweaking to get the right price point or language, or the market is simply terrible.

For a turnaround park you need significant demand, otherwise the entire plan is doomed. I would move on.


#3

I disagree with jhutson. 4 calls per week is probably sufficient to get a home filled every month or two, provided you have advertised the right rent. If you didn’t mention the rent, you need to figure out what market rent is. If you lower the rent a little, you’ll probably go from 4 to 40 calls. So the question is really, how much money does the park make based on 9 paying spaces at a relatively high expense ratio of, say, 0.6 (60%) and how much would you pay for that income stream? Subtract $80k capital improvement from that and you have your answer for where to be on price. Are you there?

How much money do you have available to put into homes and how long to get them sold off (or economically usefully rented)? This is your real upside.

Brandon@Sandell


#4

well, um at this point they owe me money for taking the park since the 80k is just slightly lower than the agreed upon price


#5

In that case I agree with @jhutson, walk away and tell the seller to get back to you when the electrical violations are addressed.


#6

It’s fair that there is not a perfect call volume, but it needs to be in line with your expectations. If I am trying to fill 31 lots I would want to fill those in two weeks, and not two months.

At two months per home that’s a 5 year turnaround to full occupancy. If that’s alright with you then sure, go for it. I would want it much less than that as I might have to worry about lowering my standards to get people in the door, which is almost even worse. :wink:


#7

yeah the current owner did the lowering expectations thing and that has not been profitable for him, but the people love living for free in the park.


#8

Everyone has to start somewhere.

Look at it this way – the “real” price is about $180k. You have time to make the improvements so that’s sort of like a low-interest loan for that portion. Would you pay $180k cash for 9 paying lots which is $20k per paying lot. That’s not unreasonable if the rents are $340 or so and you can net ~$167 per lot per month (which is a 10 cap). You have no real leverage to begin with, but you have the implied leverage of the ability to wait to pay the electrical repairs (until you have cash flow to cover?).

Fast forward to the “end of the movie” with 20 occupied lots, (increase of 11, 1 per month) sell for $20k per space a year later (or more due to better management, lower cap rate of 8%, etc), it’s worth $400k and you invested $180k cash to get there. ($90 purchase and $90 more for electrical upgrades in my hypo). That’s a pretty good return for one year and you will be out of pocket the costs of going from 9 paying residents to 20. With 21st Mortgage CASH program or Performance Equity Partners or other means, you can be out of cash very little additional money.

It would be a “slog” and “heavy lifting” but it might still be worth it. Enormously it depends on whether you can go from 9 paying tenants to 20 paying tenants in 1 year or 10.

Brandon@Sandell


#9

There are great responses already. Based on some of the deals I have looked at around there and the demographics, seems like it could be a tougher market. Parks can be fixed, markets can’t but I could be wrong…

I will add one great piece of advice for anyone. You indicated the investment in due diligence ( wether time/money/ or both) make you want to give it a try. That should not be a reason. Use the facts. Because sometimes the best deals you do, are the ones you walk away from. I know it can be tough since it seems like there are no deals out there but there are, I assure you. The people who have limited resources are at an advantage. They must be super selective and cautious because that one deal can make/break them so that is a badge of honor and treat your deals as such and hopefully you get a real good one.


#10

@MichaelG , as per your post:

  • “Indiana park evaluation”
  • “I’ve been evaluating a park in Anderson after tying it up.”
  • “My last day of DD is 29 March…”
  • “40 spaces that actually looks like 37…”
  • “12 occupied…”
  • “9 spaces paying…”
  • “6 abandoned homes with one being a meth lab…”
  • “Craigslist and newspaper adds show 4 calls a week.”
  • “…water is master metered but not billed back”
  • “…the electrical is master metered and billed back.”
  • “Electrical inspection was yesterday with the city inspector and an electrician, cost of fixes is above $80K for the park…”

My advice:

  • Walk Away (No Run Away…Run Far Away) From The Deal BEFORE The End Of DD & Get Your Earnest Money Back

  • Be Thankful For The Additional Knowledge That You Have Received Going Through DD

  • The Money Used During DD Was Like Taking A College Class In MHP DD

Some questions:

  • 12 Lots Occupied…9 Lots Paying: Since BOTH the Water & Electric are being paid by the MHP, there are 3 Lots that are getting FREE Rent, FREE Water & FREE Electric. That sounds pretty good for those Tenants…not so good for the Future Owner.

  • $80,000 In Electrical Repairs & Then The Electric Is Still Master Metered…You just hopefully do not burn down the MHP after the $80K in Electrical repairs.

  • 4 Calls A Week With Advertising On Craigslist & Newspaper: I agree with @jhutson that 4 calls a week seems to be really low.

  • 6 Abandoned Homes With 1 Being A Meth Lab: The cost to remove only the Meth Lab would be pretty high. Placing a Tenant in a former Meth Lab sounds like a lawsuit waiting to happen. In addition can you rehab the other 5 Abandoned Homes? Are the other 5 Abandoned Homes also Condemned? If you can rehab the other 5 Abandoned Homes, how much would it cost? We paid $1,000 per Mobile Home to have our Abandoned & Condemned Mobile Homes removed.

My Husband and I have a Turnaround MHP. It is 2 years later and we are still turning it around. We removed approximately 11 Abandoned & Condemned Mobile Homes.

Turnaround MHPs take a lot of work, money and time.

We wish you the very best!


#11

Ok, so talking to the inspector again revealed that in fact the info he gave me was the unicorns and rainbows wishes he had and the actual work he would accept would be far less in-depth. The park price is within my range the profit at the end of the month is within my liking. with proper water sewer bill back, the deal looks good except for the lousy turnout for the advertising but I believe the add was high on the price. I think I will go for it and see where this takes me, though I have 12 days to change my mind. Thank you to everyone who have given me advice on this, and yes I will still be listening.


#12

Only you can make the determination if its worthwhile for YOU to move forward on this, just know what you are getting into. Each person has a different take and what might not be worthwhile for another, might be great for me.

It looks like you have some good arguments on both sides of the table here.

You still have a chance to re run your marketing and generate some new test results based on the suggested test ad that can be found on the forum at not too high a price. Don’t rationalize that as a possible suggestion of why the demand is not there. Remember, its not like the movie , if you build it they will come. You can fix a park, you can not fix a market. Your first sentence states you think it is something to walk away from and sometimes you have to trust yourself.

If you move forward with it, let us know how it works out. I think you need more concession if you go with it as well.

If you are starting with 160k or even 80k, you should be able to get a better deal than this but its going to take some work to find that one.


#13

@MichaelG , as per your post:

  • “I think I will go for it and see where this takes me, though I have 12 days to change my mind.”

Just a couple of questions:

  • Will this be your first MHP?
  • Have you received copies for at least 1 rolling year of the Master Meter Electric Bill?
  • Have you received copies for at least 1 rolling year of the Master Meter Water Bill?
  • How much are yearly taxes on the Mobile Home Park?
  • Will the taxes go up when/if you purchase the Mobile Home Park? If yes, to how much?
  • What amount in Income is currently coming in on the Mobile Home Park?
  • Currently, is there a profit or loss on the MHP?
  • Do you have cash to purchase this MHP?
  • If no to cash, has a Bank agreed to finance this MHP?
  • If yes to Bank Financing, have they seen the MHP?
  • How much in cash or in Bank Loans will you have to do renovations to the MHP?
    • Remove 6 Abandoned Mobile Homes
    • Evict 3 Non-Paying Tenants
    • Renovate Any Existing POHs - If there are any POHs, they are probably in bad shape.
    • Bring In New/er Mobile Homes
    • Pay For Others To Bring In New/er Mobile Homes

A Turnaround MHP might sound easy on paper.

However, in actual practice it is much harder, much more time-consuming, much more capital intensive and much slower than one would anticipate.

We wish you the very best!


#14

Kristin,

Agree with you wholeheartedly! This is a great education. I like and appreciate your posts!

MichaelG,

You are proposing an undertaking – this will not be a passive investment like purchasing a share in a mutual fund. You may reap the rewards but do not underestimate the risk and the aggro. There may be better deals out there for you – you will make most of your “return” on the front end purchasing a good deal to begin with.

Brandon@Sandell


#15

Maybe it’s me but I don’t follow that statement at all, but it is late and I’m tired so help me understand what you mean by that? I’m an inspector and I don’t follow you at all, sorry.


#16

The inspector and I were on the wrong pages on this park and his take on things. He was going with the fix it like new strategy so he gave me that information. I called and asked him about the information he gave me and gave me a totally different set of criteria on the call. The price being much less.


#17

Thank you for the questions they did make me think, and yes I have much of the information you ask about and yes it is cash deal. I like the upside potential of the park and the knowledge that the previous owner just failed to do what needed doing and failed at what didn’t need doing. I feel comfortable with the lead time it will take and I believe I can weather the lead time fairly well. As for the abandoned homes I have a lead on someone to remove one of them for the cost of a dumpster and I am looking for the information for a park owner to take over the homes in Indiana.


#18

@MichaelG

It looks like your timeline was up, did you make a verdict on this one? Pass or full sails ahead?


#19

The decision was to renegotiate but have not heard back on the new price. I doubt it will be taken which will be fine by me. I did the sewer inspection and they used a rooter to get a better idea on the system. 4" clay tiles that are shifted around in such a way that a 2 inch cutter was all that could get through it. The price for the park now is so low that if the worst happens I have the land to sell at a profit, but like I said I don’t believe they will take it.


#20

Ok so looks like I have a park at bargain basement price tens of thousands off the original agreed upon price. I did not see that coming. So my outs now include selling the land for at least double the price. But now I have a bit of a war chest for fixing the place up. I feel kind of tingly now.