I've been patient and looking for my first park for a year or so. I've seen lots of deals. Finally got one in contract, I have a plan to turn it around, but my deal analysis isn't what I expected.
The market: 12k city with increasing population, 6% vacancy, $830 2 bedroom apartment, $1,094 3 bedroom apartment, $88k median home value (thank you Best Places!). Located about 10 minutes from downtown. Metro is 750k population and increasing. Metro housing stats are similar to those listed above. The local economy is recession resistant: major universities, state capital, healthcare, and a decent variety of industry. Lot rent comps appear to be $250-300/month including water/sewer.
The deal was initially advertised as:
- 52 total lots and one 4br 3ba stick built house
- 85% occupancy (44 lots)
- city water/sewer paid by park
- average lot rent $225
- 22 POH
- 8 vacant pads
Based on this, my quick estimate was 44 x 12 x 0.6 x $225 x 10 = $712k (@ 10 cap)
Add in $80k for the stick built house and $110k for POH (22 @ $5k each)
Initial estimate was $902k. Listed at $980k. Got it in contract at $910k with 10% seller carry (amort 20 years, due in 10, 6% interest).
After a whole bunch of calling around, I have great financing lined up: 4.75% interest, 15 year term, 25 year amortization, 80% LTV (they won't consider the seller's carry as down payment). The bank is even willing to do the loan after the broker said the seller will not provide bank statements, P&L, or tax returns because he accepts a lot of cash and has other businesses mixed into his one LLC.
Some minor issues popped up in my due diligence: a possible lawsuit against the owner for mold (separate thread), one trailer has a pending settlement from some car damage, minor rent roll changes due to evictions and re-renting, etc. I'm still getting quotes for tree trimming and pothole repair. The broker also said there are only 21 trailers that convey in the deal. Tax records show there are 23 trailers that are POH, so the seller is keeping the best 2 trailers for himself.
So far so good.
But there are two issues that I'm concerned about:
There are really only 39 lots (+/- due to evictions/replacement) that produce rent. Here's what the other 5 lots are doing ... 1 guy has free lot rent in exchange for mowing the common areas, one tenant lives free because it's the owner's daughter, two vacant trailers that need full rehab, and one abandoned trailer that I'll need to get through the abandoned property process. So technically the revised price should be 39 x $225 x 12 x 0.6 x10 + $190k = $821k (10 cap), or as high as $892k at a 9 cap. So maybe we aren't too far off.
I've talked with the CASH program team, and it looks like I can extract somewhere between $180-200k by selling off the POH via the CASH program for used homes. So in theory I should have most of my initial investment back soon. But, as I model the deal on the MHU spreadsheet, my cash on cash hovers around 20% for all 5 years. I was expecting it to be much higher since my cash in the deal would decrease over time when I sell the POH. I've talked with Eric and he's been very helpful. (This analysis includes billing back water, renting the stick built house, and price increases over time).
Basically, when #1 and #2 are combined, this deal is looking less attractive. I was hoping to get 20% cash on cash initially with it increasing over time, rather than staying static at 20%. Am I crazy?
The broker has indicated he's overwhelmed with potential buyers after he posted it online, and the seller probably won't budge on price.
I'm thinking I could ask him to rehab the 2 vacant trailers (but not rent them), and throw in the 2 nice trailers in exchange for me dropping the seller financing. I don't need the seller financing since the bank won't consider it as down payment, so he could walk away with lots of extra money instead of a 20 year amortization.
Am I crazy to re-think this deal?
For what it's worth, I'll be using a HELOC from another property for most of the down payment, and planning to pay that HELOC down as I sell the POH via the CASH program. The HELOC terms are very favorable and I consider it a low risk, short term loan.
Thank you in advance for taking the time to read and respond!!