Negative cashflow on turn around park


#1

i found a turn around park that has great potential (good infrastructure - no current marketing or lonnie deals - some bad tenants). I am familiar with Corey’s 60/30 rule as a general guideline. However working the numbers - having 39 PAYING tenants out of 48 in a 113 lot park- I am going to be buying this park at a negative cashflow of $5500/mo including debt service. Lot Rents are $295mo. That means I’m 19 paying tenants away from break even.

AM I CRAZY TO GO AHEAD WITH THIS DEAL??

or

Is this the typical risk you take in a turn around park deal, if I feel I can fill up this park with better management and getting some MH’s in there for lease/option deals.

Current deal structure requires no money down with combo of bank and seller financing

thanks guys


#2

How strong is the market?

Depending on the area, consider 2 trailers a month absorption, so for 19 trailers you are looking at roughly 10 months to a year to turn around this park. That is almost 60k out of your pocket? Can you afford it, do you have the backup funds? THings always take longer in these projects…

If I were you let the seller take the heat for the first year so you can break even. If it was a slam dunk to do this deal he would have done it himself.


#3

Dan:

Try to get seller to waive your payments for the first year so you can use your cash for fix & fill work. Ask lender for interest only for at least 6 months for the same reason. Two things come to mind 1) Do you have funds and experience? and 2) Do you know your market (this area) and have access to homes? You can’t beat 0 down but without a market it doesn’t matter.


#4

WOW! thanks for your input guys. Great idea to ask seller (and even the bank) to shoulder some of the burden as I turn this park around. We’ll see what happens. Seller is motivated so it should work out.


#5

Dan, sorry for y bluntness but what the he!! are you thinking? I’ll tell you what I will make you a better deal, you pay me $100,000 now and then you only have to pay me $4000 a month instead of $5500, and I will let you break even in just 6 months.

Really man, with all the real deals out there why are you settling for this? If you are that anxious to get into a losing deal, go down to McDonalds and give them just $10,000 and see if they will hire you for minimum wage. It will cost you less but you will probably enjoy it a bit more then feeding this aligator.

Im working on a deal right now that has $5,000-$7,000 net income from day 1 and that is BEFORE I start working my majic. Spend some more time looking for a better deal, UNLESS you can get VERY FAVORABLE terms as the posters above have mentioned.

I am a firm believer that there is always a way to make any deal work, but sometimes it is just simply better to move on to the next deal - now that is the decision YOU have to make on this.


#6

A couple of thoughts:

With a MH park of this turn around size you will need to commit 2-3 years of your life. There are so many moving pieces and requires a lot of time and money, i.e. managing the park, buying repos/new homes, rehabbing, utility hookups, selling, etc. I would strongly recommend that if you really want to do a turn around MHP I would attend the MH Bootcamp that we offer. We will show you first hand everything that goes into doing a turn around. Most people after seeing how much work is required would rather do a turn key or a slight turn around project.

The owner is trying to sell you on “upside”. Yes, there is upside but you will need to invest a lot of money to buy homes (about $10k - 25k for good repos and $20k - $35k for new homes). The turn around park will consume your life for a few years. There is definitely huge equity to be created… you could easily create a million dollars +.

If you do decide to purchase the park, I would do it with a lease option. This will reduce your risk and allow you to control the park for a lot less than if you were to buy. Lease option is a disguised form of seller financing. I would definitely ask the seller to waive the payments for the first 12-18 months.

Unless he can find a newbie or sucker to pay cash he will not be able to sell this park without owner financing. No bank or lending institution will touch this park with the occupancy. The owner is in a bad position and is trying to pass off on to somebody else. You are in a very strong negotiation position!

I hope this helps!

Corey