Have a park under contract and would like the forum participants to evaluate and help me understand its value:
60 lots total, all on city water and paved roads.
2 vacant lots without homes.
58 homes, all occupied (7 park owned, 51 tenant owned).
Lot rents are $350 per month (includes water and sewer and trash).
Park owned homes pay $475 per month.
Park has a septic system that has 4 pumps to get the flow up to the leach field.
Metro area: Florida (Population: city of 15,000 with metro area of 500,000).
Homes are older & small, and the lots are small.
Total park including leach area is only 5 acres.
Park amenities are limited to a small recreation building with a laundry facility.
Seller’s P&L shows 45% expenses (including $2.5k per month for water).
The plan is to install water meters immediately and start billing for the water expenses that currently run about $30,000 yearly. Seller has agreed to a 2nd for $200,000 (6%, 25 year amortization, 10 year term), and the local bank is interested and has quoted 4.5%, 20 year amortization, 10 year term, with a loan fee of 0.5 points. The bank is okay with the seller 2nd behind their 1st and will provide an extra $50,000 at closing to allow renovation of the park roads (patch potholes and resurface) and installation of the water meters. Again, please note that the lots are small and the homes older and small.
The starting point is whether the park has any value at all. “The lots are small and the homes older and small.” When the homes reach the end of their economic value and have to be replaced, can you do it in an economically viable way by re-configuring the lots to bring in modern size homes? Septic system with pumps to get flow up to leach field needs careful evaluation. Do you have alternatives if the leach field is not adequate any more? For many (if not most) of us, 60 lots plus leach field on 5 acres is a non-starter.
Hsschwar: Thank you for your comments, even though they are a bit concerning since you say most investors would not even consider the park. There is city sewer in the street in front of the park and so that would be the back up plan, and could even be an upgrade during the 1st couple of years, yet the cost to connect and modify the collection system may be overwhelming.
In my opinion the deal is dead unless you have a spot for a replacement drain field. Unless the owner wants to pay to connect to city sewer.
If you have a adequate location carry on with due diligence. As was mentioned if and when a home need replacement can you get a home back in the spot or is it just to small.
You never mentioned the purchase price so it is hard to know if the deal is complelling financially or not. If the market is good and the math makes sense then it is time to look at the infrastructure.
I think 58 homes at $350.00 on lot rent is a workable size for a septic system. There is adequate economies of scale in my opinon. If it was a package plant the econmies of scale would never pencil.
Private utilities deserve a risk premium i.e. a higher cap rate. In my opinion you deserve 1 to 3 point spread over market cap rate to deal with the extra cap ex and head aches.
Also run your plan to pass water along to your attorney. Florida has some state specific regulations about new billings when the park is > 50% tenant owned homes. There are likely some special notifications and procedures required.
Just remember, There are many business models, and the above responses on lot size are only ones opinion for their business model. City folks like myself HATE large parks , we like high density, small acreage parks. If I had my way I would add more units on one of my smallest park. It currently has 45 spaces and a 1500 sq ft house on only 2.5 acres, And I could easily add more spaces. There are full time resident (TRAVEL) trailer parks and there are double wide type living mobile home parks. They are both viable business models.
Everyone goes for a different thing , and clientele. Again they both are good.
The key is to make sure the infrastructure will last. Listen to the Florida people as they probably know about the Florida politics and state requirements when it comes to septics, and the water and sewer bill back opportunity.
Lastly, you don’t always have to worry about an exit plan as much as some of the people on this forum worry about either. We have sold 5 different assets out of 50 in the last 45 years and we still regret it. Our motto is if cash flows leave it alone. Why reinvent the wheel and buy fix flip. We do the buy fix flip for a living in the residential side but when it comes to our investments we like to believe we will keep it for life, and for the most part we do. That is why larger isn’t always best and being able to get a loan isn’t always best. Again different business models for different people when it comes to money and again, they all work.
You just need to know what you ultimate goal in life is with your investments.
The harder it gets to get property in the future a lot of people on this forum will be kicking themselves saying " I wish I would have kept “such and such park”.
In closing, reach out to all the Florida people and the Florida Mobilehome park association etc, if you still are having concerns.
Wish I could be more helpful .
Good Luck out there.
Troutt, jhutson, and PhillipMerrill: Thank you all for your comments. In moving forward with due diligence will give extra focus to the septic system, its design, and assessment of various backup plan(s) should the current system have major issues. Going to try to negotiate with the city for “reasonable” connection fees. At least it is down hill to tie into the city’s sewer.
Phantom – You never did say how much you are paying for the park. What cap rate? Price? Seems that you have good financing arranged. Although the bank rates for parks is pretty low now if the LTV is 70% or less.
The purchase price is to be $1,600,000. Rough numbers are:
– price per filled lot = $28k
– cap rate once water is billed back = 10.6
So far, only have found the one bank comfortable with the seller carrying a 2nd behind the bank’s 1st. How is the price? Think we could be overpaying? It is a 55+ park.
With the additional information, I have some additional comments. This may be viable since there is sewer in front of the park. I would not consider the park unless you can hook up to the sewer immediately and know the price and work it into the deal. You do not want to be negotiating with the city a year or two down the road when you do not have a choice to walk away.
The other point that may affect this is that it is a “senior park.” There is the option of placing Park Model homes on the sites which many seniors like in resort type parks. They are only 800 square feet by code but are very well made. The problem is that they are about twice as expensive as mobile homes and you need to be sure that your current or future residents can afford them. Seniors purchasing Park Models are not likely to move into a park with poor infrastructure.
With the above considerations, I believe the park is overpriced. The price may not be unreasonable if all the infrastructure is good. This means decent roads, water lines, and having the sewer hooked up to the city, and there is demand for vacant spaces.
hsschwar and NCCMHI: Your comments are appreciated.
Does anyone have advice on how to approach the city to get any reduction or flexibility in their hook up fees, etc? Has anyone tried to negotiate with the city for connection services and been successful in getting some credit or flexibility?