Please help me evaluate this park deal


#1

This is a 2 park deal. Asking price $650k (for both)

Metro Population: 125k
City population: 50k
Median home price metro: $95000
Median home price city: $75000
Household income for the city: $33000
2br rent $670
City vacancy: 16%
Metro vacancy: 11.5%

Park 1:
50 lots
27 - occupied. (8 POH, 19 TOH)
2 - vacant POH
lot rent - $225
city water and well.
Parks pays for water/sewer/garbage.

Park 2:
50 lots
20 - occupied. (4 POH, 16 TOH)
12 - vacant POH
rent - $225
city water/ city sewer.
Parks pays for water/sewer/garbage.

The good:

  • sample ad pulled well.
  • lot rent can be bumped to $260 (maybe even more)
  • some vacant POH that can be put into service.
  • parks are 10 miles away from each other, so there might be some economies of scale.

The bad:

  • well - city is allowing connection but it’s about $80k
  • vacancy rates for the city as a whole are 16%
  • low household income for the city, but the metro is ok.
  • both parks are 1/2 empty.

Thank you for all your feedback!


#2

Ask to see the books… they may be full but have tenants that didn’t pay. You may have hidden costs that could do you in. Look for any requirements from the local government and include a compliance clause in the contract. Any good faith monies need to be put in escrow with an attorney.


#3

I don’t have the books yet, but making an assumption of a 50% expense ratio for the parks of this size and owner paying for water/sewer and trash.
For me, the main thing would be to confirm that the city would allow connecting to the city water and get more or less concrete estimates on the cost of doing so.


#4

In most states you can bill back for the expenses associated with well water and septic using metering - it would mean you have to set yourself up as a utility and baselining your costs / capital improvements, but it’s a lot cheaper than spending 80K and other major expenses repiping the entire park (unless you’re having severe water quality issues).

I would sweat the private utilities and put those dollars towards infill and consider city water once you’re full. Half full park and no pass through on water sewer this size will be closer to 60% expense ratio.


#5

@jhutson, i agree with waiting to switching to city, however i am worried about this single point of failure that could potentially shut down the park. Also, there is no guarantee that if the city is ok to connect today - it’s going to be the case in 2-5 years.

Do you feel that the price is justified at 60% expense, which to be honest, is what i am seeing (i have numbers for some major expenses and missing some smaller things like lawn/snow, etc. )? Especially given that i would have to shell out $80k at some point. Thoughts?


#6

Well, you’d have to dig in on what major improvements the park needs now or will need within the next five years and add that to the price you’re paying and see if the return still works for you. Jhutson is right about a high expense ratio. Hopefully, this gets better over time if you’re able to raise rents and fill lots.

What pricing did you use in your test ad? Ideally, you’d have to figure out what kind of homes you’d be trying to sell and at what price point. Then, you can back into how much this will cost per month to finance. Once you have that figured out, you add in the market lot rent. Whatever that number is, that’s the number you should use in your test ad. If you get a strong response to that, you can probably fill lots. You definitely want to pull very strong, since you know you’re going to have to fill so many lots and the area stats are all very borderline to a little low.


#7

Looks like everything is a little worse than initially was stated.
One of the parks is actually only licensed to have 35 lots (the one with the well)
Another, has only 15 occupied homes.
The test ad was run at a $450 rental for a 2br homes. That would give me a $200 spread between a lot rent and a rent-rent.

One of the parks is bordering with a subsidized housing apartment complex and that seem to be sucking a lot of potential customers.

This one looks grim at this point. I think it’s too much risk and a lot of capital to bring it to being full and switch over to city water.


#8

Gotcha. You’d probably also have to re run the ad because I doubt you’d be able to bring in a home and sell it with a financing payment plus lot rent for a total of $450. (If that’s what you’d be doing). Alternatively, you could bring in a home and sell for cash and most likely take a loss to fill the lot. Then there would be no finance payment and lot rent only. I’d still run the ad for the higher amount and see what kind of response you get. Probably at $650 -$700. That’d be more realistic.

You could also see if they’re willing to drop the price and hold some seller carry. Even if they say no now, stay in touch and see if they’ll drop the price later


#9

@kkeindl, help me understand $650-$700 amount. I really doubt that the area will support that kind of rental rates. There are quite a few mobile home ads in the area all run in the $450-$500 range (that’s inclusive of the lot rent). So my reasoning was to raise lot rents to $250, then the rental (or rent credit) portion of the house would be ~$200 a month. Over 5 or 6 years it’s about $12000. Reasonable price to sell a used 2br mobile home for.

But i think the only way this would work if they do drop the price and i can negotiate some good owner terms.


#10

I think it’s the difference between the 12k and what I’m figuring for home cost (20k-30k). If you buy a home for 12k and then pay to move it, set up, upgrade any utilities etc. and then renovate it you’re probably looking at at least 20k-25k. That would be about $250 a month, so not nearly as bad. If your lot rents are only $225 you’re definitely in the right ball park


#11

I’m assuming a 10 year loan at 5% interest for the home at $25000 to come up $250 / month FYI


#12

I wonder if 21 st will finance the additional used homes auxiliary costs like moving it, skirting, tax, and set up like they do with new homes. That’s another capital carrying cost to consider if they don’t.


#13

I believe they do for the used homes they’re actually willing to finance. They do a lot of used homes, but you have to make sure it fits their criteria before you buy it and move it in. A lot of people try to move in used homes that don’t fit their criteria and then try to sell them with cash and it doesn’t work out.


#14

That makes sense. The only criteria I’m aware of is the 10k+ value.


#15

This park has 60’s and 70’s homes. I doubt they will qualify. But thank you for advising!


#16

One other thought here… if the park infrastructure is good, then you only need to pay for the hookup from public water supply to your water supply. of course, you could be laying pipe 110 foot, or 1/4 mile… expensive. I’ll assume you currently have well water… Ask the owner for copies of the Water Quality Certification reports. these are required for deq. verify the required testing is being done, and who is doing it. originally our park had well water. wells were deemed unfit, had to be abandoned. previous owner had to go city water. Still, based on the fact that we meter and bill residents individually, we are a “water company/distributor” and are required to do the same water tests as the city does. We were paying for it, then to save money, I got my license… DEQ class d drinking water license.