Tax valuation vs real value


#1

Ok, to start with, I am totally new to this but considering it. I have a rental property, but it is single mobile home on about 6 acres of land. I have been considering a small park for a while. I ran across a guy that is looking to retire and owns several. Now I realise that county tax assessments are off some, but how much in a mobile home park setting. The county tax assessments for both that I am looking at are valued at about half of what the asking price is. All the mobile homes on the property are very old and not in the greatest of shape, but are regularly rented and has positive cash flow, and even at his asking price would have positive cash flow after paying note and other expenses, barring nothing major. What do you think?


#2

Does the assesment include the homes? In NY it does so it skews the park value numbers upwards. “Something major” is not what’s gonna get to you it’s the day to day management and upkeep. “Very Old homes” need CONSTANT attention, and so do their occupants most of the time. I would look very carefully at everything (due Diligence) before I made a move.


#3

Yeah I know some time is going to be involved, but the guy is wanting to do a wraparound mortgage. He already has established loans with multiple parks which means I don’t have to worry about obtaining financing, he has already established that for me. I just need a little downpayment cash.

The homes on the property have very little book value but most are rented and I havn’t verified yet, (but of course I will) he says the regular income will cover the payments plus positive cash flow. The way it is set up it will be paid for in 9 years. It’s 26 acres of property, that once I get paid for I may just be done with the homes and resell the property. Half of the property is in hardwood lumber which may also be a bit of income that I can tap into to cover the downpayment once the deal is done. Still have to check on that.

Any other things that I should check into I would love to hear feedback. Thanks


#4

In my area, my small parks are all valued rather low for tax purposes as well. You are on the right track as far as making sure it cash flows.

I use what I call a “checkbook analysis” for the small parks. I independently confirm all expenses first then use what I feel are market rents for the units (I prefer to own and rent the homes… I know I am strange that way) to get the gross income.

I take out a reasonable vacancy rate and for rent that simply won’t ever be colleted, to get my effective gross income (what I might actually collect).

From there I take out the expenses and make sure to pay myself first as an expense. This way you build in your profit and/or allow the property to pay for management itself if for some reason you are unavailable.

Whatever is left over is what I can use to pay the mortgage each month (thus my naming it the checkbook analysis… because that’s what’s left in the checkbook at the end of the month).

Using that monthly mortgage payment you can negotiate terms.

One other comment. I don’t like the idea of buying on a wraparound mortgage unless I get to pay the underlying lender directly. There is too much worry for me if I just pay the seller and hope that he in turn then pays the underlying lender.

I want to know for sure my timely payments are received and credited as such.

Good luck and let us know how it goes.

Tony


#5

The wraparound is setup for the payment to go directly to the lender. I was concerned about that as well. Thanks for the comments.

I know it will vary from place to place and time to time a bit, but what kind of vacancy rate do you normally expect to have? This particular park currently has 12 renters, but room setup for 8 more. I realize the more you have the less it will “hurt” when there is a vacancy, so my thinking atm is for him to get it up to 15 renters, which he is currently working on anyhow, before I commit and then get it up to capacity as soon as possible.

I’m totally new to this, so I’m kind of getting cold feet, worrying I am missing something. Mathmatically it all seems to work though, so all suggestions and comments are greatly appreciated.

http://virginiascenery.blogspot.com/


#6

Vacancy will also vary by area and demand but there is always some vacancy (despite what any seller or agent may tell you) and there is always some rent you will not collect.

I would not encourage you to encourage the seller to fill vacancies before you buy, that is you area of upside. That is where you will begin to make money. If the seller fills them then he will charge you for the higher value (lower vacancy, higher cash flow). Additionally I don’t want a seller picking my tenants. Those tenants don’t mean anything to him other than to jack up the price of the park. I want to choose my tenants. If the seller puts the first breathing body in without consideration for proper screening, then I will be stuck with them when I buy.

There are many ways to value a park, I use actual numbers and the approach I mentioned in my preceding post.

We do a small park boot camp but the next one won’t be until 2008 so it may be too late for this particular deal.

Gather as much info as you can and post here and we will see what we can do to help you out.

Tony