Here’s my deal -
I just got it under contract and have done some prelim diligence:
I am sorry it is so long and also sorry if these issues have been posted elsewhere
Thank you in advance for your kind help and feedback!
125 lots - lot rent $180 (market rent I believe to be $190-$225 - still working on getting this #) -
89% occupancy (approx 105 occupied) -
26 Park owned homes POHs (Assume an avg value of $4000 ea) -
gross rents $225k - expenses approx $105k (45% expense ratio) -
NOI $120k -
asking price @10 cap $1.2 million -
purchase price currently under contract $1.1 million
( At this price I am getting the POHs for “free”) - but wait it gets worse! (see below)
Utilities:
the following are direct metered paid by tenant: water, electric, gas
Park pays city sewer for 1/3 of park:
1/3 of park is on city sewer & 2/3 is on septic - (the city ran a sewer line thru the park and nearby lots were connected to city sewer- connecting the rest of the homes would require new sewer infrastructure (see below)
Demographics of town:
only 25k residents ( but a new walmart just opened 1 mile from park and it is 1 of 3 walmarts in this town- the town is a pseudo-tourist town)
it is part of a metro statistical area of 150k -
median home price $100k - apartment rents in the area 1,2,3 br = $490, $650, $825 (“light” Frank would say)
Unemployment rate 8.5% (nat’l avg 6.5% ish)
Major employers - 25+ hotels, 3 walmarts (500 employees), campbell soup, Mountain Aire farms chicken processing (300 employees) - I am having a hard time getting this info and still working on it
density 10 / acre
Fairly high crime rate in the city but police department says the crime is fairly confined to a section of town 10 mins away and the park and its surrounding neighborhoods have had only 1 police report written in 3 years (domestic violence - not drugs or gangs - police dept says the park is quiet and the tenants “behave”)
Infrastructure problem #1
Roads are lousy with lots of gatoring and potholes constantly being fixed - Pierce at Security mortgage group has seen some photos of the roads and says that I am unlikely to get a loan without fixing the roads. I called a paving company who says its possible to resurface the roads for $20 - $30 / sq yd -
Repair cost estimate: assuming the worst that they all have to be redone:
3500ft of roads x 12ft wide =4500sq yd of road @ $20-$30 /yd =
estimated repair: $80,000 to $130,000
Infrastructure problem #2 (the big one!)
The city wont allow septic system repairs of any kind. They want city sewer to the rest of the park
New sewer infrastructure is needed but the city will waive tap fees (big deal right?)
Every time a septic tank or field goes bad the park loses 2 lots (there are 2 lots per tank)
The park is 45 yrs old and septic tanks are failing at a rate of 1 per 3-4 yrs - Big trees live in the park so the city thinks this will accelerate
Estimated cost to convert remaining 90 homes currently on septic to city sewer:
2000ft of mains needed at $40/ft = $80,000 + engineering costs
Run lateral sewer lines from septic tanks to main - $2000-$3000 per 2 lots
$100,000 to $150,000 + road repairs, etc.
Total estimated sewer upgrade cost: $200,000 - $250,000
Total of Road repairs and Sewer upgrade $350,000
(I know this sounds crazy but the bank will demand the road repair for the loan and the park is losing lots without the sewer upgrade)
Solutions (is buying this park do-able without losing my shirt???)
1 - drop the deal
2 Split the cost of road and sewer upgrades with seller and reduce purchase price to $925,000
[$1.1 million price less 175k (1/2 of $350k)]
3 Seller pays entire cost of infrastructure repairs but pay add POHs: new price $1,000,000
($1.2 million + 100k for POH’s = $1.3 million price less $300k)
4 - or some other variation of the above ( you get the picture)