Small Mom & Pop mhp neglected by their kiddos.
Originally built in 1965 and asking $650K (4 cap)
Stats are as follows:
32 spaces (alleged)
3 POHS - rented at this time
1 Trailer Note
9 vacant lots
Lot is currently $330 includes w/s/g (metro average is $410)
Park pays water/sewer
Expenses are running 72% of gross, leaving a NOI to low to pay mortgage, let alone reserve.
Water lines were upgraded to PVC in the 80’s
Median Home $179k
Metro 84k - County seat, State University campus just a few miles away
Following the MHU spreadsheet with a 12 cap offer should be around $380k for the park at it’s present capacity.
Passing water/sewer expense through to tenants
Raising lot rents to $350 - $375
Dismissing the Professional Management Company
Should get my NOI closer to 47% from 28%
Test ad at $375 on craigslist yielded 3 new tenants in 7 days
32- 9 equals 23 occupied lots at 330 per month = 7590 x 12 months 91,080 annual gross x.6 = 54,648 @ 10 cap theoretical value of 546K .
Thats theoretical on currents and really I would say you use a higher cap rate like you have done and a higher expense ratio ( since they can run that way on smaller parks) .
The concern is you posted $330 includes w/s/g
It looks like that would imply the park is paying for g , which is GAS , possible master metered gas here? If so that changes quite a few variables. I feel its implied here that this park is city water , city sewer but please confirm that is the case.
It sounds like you have the financials which are showing a 72% expense ratio, what is the bulk of the cost going to? Is it only the professional mgmt company? Please elaborate so you can get some better feedback.
Also, what are the 2 bed rents in the market for an apartment according to best places? Your test ad is wrong. It sounds like you might be advertising lot rents instead of 2 bedroom rents (do a search on this forum for test ad) ? If you were advertising lots for people to bring homes in and pay that lot rent, that would be a different story.
Lastly, I would think if its “neglected” by the kiddos, high expenses/low profits, you may have challenges with getting it financed and based on the scenario of the kids selling their parents park , my guess would be they don’t want to carry paper.
And the last extremely large issue is the price is only a few planets away from reality
Please provide more info on all these points for a better understanding as to what this park is .
Thank you Marvel_Equity for taking the time. To answer your questions:
G=Garbage around here in ad space, but I will switch to T if that works better for this forum?
Water and Sewer is provided by the city to the entrance of the park. All lines within the park are my responsibility. The 1965 sewer lines have had leakage issues per public works.
No master meters for gas, etc.
72% based on 2014 P&L. Rounded off top 3 expenses are water/sewer - $30k, Taxes - $16k and prof mgmt $10k. It will take a while to appeal the tax valuations so that number will remain for a year or two. As I mentioned above, would pass through the water/sewer, and cancel the mgmt service to get closer to a finance able situation. Per the realtor, the kids think this is worth a million dollars. He has been trying to educate them about the financing, and how their park would never mortgage at that price.
2 bed apartment on Bestplaces is $825. I am familiar with the area and the student housing alone for the neighboring University drives 2 bedrooms to $1,000 -$1,200. I have never seen $825.
You are right I did not do a standard test ad. With some optimism and students and staff looking for housing at the University, I tried to kill a few birds with one stone. I wanted to see how the $375 lot price would be received. I wanted to start compiling a client list so that I could erase those vacancies as quickly as possible to get me by till I could get a license to sell Clayton homes and then start filling the vacancies that present themselves with new homes. One of my callers is already very interested in purchasing a home to live in the park. I also wanted to use this list to present to my credit union in case I could convince them to finance it at some point.
Oh, and I did not pick the planet or the price. As I mentioned I used the spreadsheet provided by MHU. Which is one of the reasons I put the scenario on the forum for comment. Thought that might be a bit low. I used a 12 cap because from what I read the FED is going to be increasing rates this year and thought I would hedge against with a 12 cap.
I think I got all the questions you had and thank you again for taking a look at this.
Im not sure what the standard is but when I see t, thats trash.
Thats an extremely high water sewer trash bill of 2500 a month ( or 100$ plus a month per lot…) , leaks /overconsumption /combo of both…
Your takes I feel are also going to be proportionately high to what we are establishing as your current value. That is also a line item you can’t bank on getting reduced but would be gravy if you did. You will also have a mgmgt line item. If you have a small compensation package ( per lot plus free lot rent) and add in a 5% mgmt fee (from your centralized mgmt company) .You really might not be doing anything here in terms of saving…
Student housing I think is a different comparable metric for rent comparisons as I believe they can run higher than average.
Based on these variables unless you can get it cheap with terms, go down the line to the next one
Curious what price you think that would be? Since you mocked the $380k. I can afford the payments on $350k with passing the water/sewer bill through to tenants…
It has too much going against it without enough upside… Look at 100 more deals and you will find one that looks better than this . Its your opportunity cost. Maybe one day when there are no decent deals you can do this one but I don’t think you need that headache, find something that will give you a bit less of one…
Again, thats my perspective , you can make the argument of doing this deal and at what price it makes sense and someone here might be able to give you better perspective on it.
I agree with you Marvel_Equity. With it possibly converting to seller finance terms, thought this “might” be a good fixer upper. I just can’t come up with a good exit plan at this point. Someone else has been doing their due diligence so I would have been outbid anyway. Would be interesting to see what it sells for…
There’s a lot of value to the comments other posters have shared. However, too often potential buyers will quickly decide a potential acquisition isn’t worth pursuing based on a “thumbnail” metric and/or analysis (which is fine and dandy to employ if you already own a sizable cash-flow herd of properties). But getting across the goal-line on the first “buy” may require a different approach. Given the facts you’ve shared, I would start the decision process by asking two questions: (1) what material are the sewer lines made-of?, and (2) can you get “as-built” engineered drawings for the water lines? Indisputable facts can sometimes become very effective tools that cause misguided/uninformed sellers to see the error of their ways.
Thanks Sandy56. Those would definitely be on the list of documentation requested to be provided at the time of due diligence. Hard to obtain before making an offer in most situations.
Sorry, I should have said contact the local jurisdictional authority’s engineering dept staff to ask about both items. I doubt the sellers will have them.
Got it @Sandy56. If you come across some seller finance parks that are smaller than the big dogs want but large enough to compete, please keep me in mind. I don’t mind 40-50 lots and up to get started.
I know I was shocked when I looked at the 2014 P&L. They will consider carrying for 3 years (balloon) with $100k down but they still want $650k or close to it. The county has this valued at $845k and they think it is worth that and more. Most banks have just passed. The sellers did accept an offer this weekend but the realtor is not sure that it will go the distance and wants to keep me as a back up. I am just not sure what an appropriate amount would be to stick to. I do like the figure your spreadsheet came up with, but the realtor said that was too low. lol
For giggles, what do you think about a 3 year master lease?
23 lots x $330 rent x 12 x .5 (because the park is so small and vacant) x 10 = $455,400. Math is math, and that’s all the park will support. If they have an offer for $650,000, let them take it, and then buy it from the bank when that buyer gets foreclosed on.
A three year balloon is of no value. You won’t even have three years of financial statements for the bank when the note comes due. Anything under 5 years is a joke and 10 is much better.
My bet is that there is no contract on this at all, nor any buyer, and the broker is just trying to push you into over paying.
