Looking at a smaller park in TX 25 spaces 3 vacancies all resident owned, on city services, and individually metered. Demographics appear to check out Rents are high for 2Br $800 range,med home value over 100k, low vacancy, low unemployment, just a very small town(pop 1800) metro 38000, but within 80 miles of Major Metro. Very little maintenence and minimal expenses on this park as residents take care of their own lots and water/and utiliities are billed back to tenants…Rents are low $165 so there is upside in the rents and filling the three spaces(2 homes on the three unoccupied spaces). Seems to be a good little starter park.
However it sits in a 100 year flood plain --however it hasn’t flooded from what I understand .
Would this be a deal killer?
Harder to sell on the exit?
Would raising rents $40 per space right at the get go be too much ?
–there are litterally no other parks in this town and only handful with in 10-20 miles radius so there is no where for residents to go if they did decide to move which is unlikely.
We negotiated what we feel to be decent terms 17% down 295k price. seller carrying the paper at interest only first year 10%. 15 year term.
Seller appears to have taken maintained the park, but never got a flood certificate or did an environmental so those are two expenses we will have to incur which is somewhat significant in terms of upfront expense on a park this side.
You need to see if a bank would even loan on this property, and you should make sure it would qualify for flood insurance if you could buy it. You would probably need to mandate the residents get flood insurance.
There are mobile home parks in Colorado that flooded a few years back, and after the waters receded the city would not allow homes to move back in. These were out of the 100 year flood zone, but never the less…
I would ONLY buy if the park qualified for financing, and then only if I could buy it, raise income, drop expenses, fill lots and sell it quick… I would have it back on the marked 9 months after buying it and 1031 or take my profits and move into another property…
22 lots x $165 lot rent x 12 x .6 = $26,136 of EBITDA. At $295,000, this park is only at a 9% cap rate. Even with the seller financing, you are in a small metro and in a floodplain. To me, the park is overpriced. I would think this is more of a 12% cap rate deal to make it compelling, and that’s a purchase price of around $218,000. Obviously, not what the seller wants to hear, but it’s the truth.
To buy this deal, you’d have to be able to say “yes” to the following:
I am extremely committed to this market and think it has a strong future.
I am willing to endure the hardship of a flood and will spend days on end at the park if it occurs, as well as inject significant additional capital into it if necessary.
I realize that I may never be able to sell this park for cash, and will carry the paper or keep it for a lifetime.
If you can’t say “yes” to these three questions, then don’t buy it. I’ve never seen this deal or the market, but the description would make me drop it in a second.
There are API’s to overlay the FEMA floodmaps on Google Maps so you can see the Floodway vs 100 vs 500 vs Zone X on the property at a granular level in your major metros - might not bee as available for a small town. Sometimes the entire parcel is in the 100 year and it’s a non issue and you step away - but in other cases parts of the property will be in varying areas, which might change the conversation if the majority of the homes are in the 500 year plane, for example.
The other expensive option to confirm whether the flood plane is mapped right it to have a topographic survey performed, which may or may not contradict the FEMA floodmap using the base flood elevation. The floodmaps can be updated using a LOMA or LOMR application if that ends up being the case, but it’s a $5K type process and takes many months. Only about 5-10% of the time are the FEMA maps really far off so I wouldn’t recommend this unless all the other items like Jim and Frank mentioned are in overwhelming favor.
In general yes this is a deal breaker for me unless you have some data / reason to investigate further.
Thanks for the feedback guys as we dug a little deeper on the flood plain issue it appears that its just not worth the risk unless the seller came down substantially on price which they have have no interest in doing. Thanks Again.