Would you pass on this deal or try to make it work?

This would be my first park if the deal goes through. It is a 15 lot park plus 2/1 home on property in SE Indiana (I live in Florida). Lot lease only, 9 occupied but 6 homes are RTO. Purchase price is $98,000 for park, stick built 2/1 and RTOs all included. Lot rent is $165 with W/S/T included(slightly low for area based on comps, could raise $20 day 1). Total expenses shown are $10,497. Total revenue is $37,555, but this includes lot rent @ 17,820, RTO income @ 14,335, and home rental at $5,400. After I sell the home and once the RTO income dries up and I only have lot rent, the revenue would be $20,520 without any additional homes added and a rent raise to $190. This would put it right around a 51% expense ratio once rent is raised which sounds about right for a small park that pays for W/S/T.

PROS:

  • Small home appraised at $51,000. Could be sold ASAP and use the funds from sale to place additional RTO homes on property. Average home price in the city is $65,000(seriously).
  • Upside once additional units brought on and sold.
  • Low purchase price.
  • City sewer/water. Park owns the lines from home to hookup.
  • Tenants pay for electricity and gas.
  • Only need to add 6 homes to be at 100% capacity.

CONS:

  • Very poor teaser ad response. I place a couple of craigslist ads and only received 1 response in 48 hours.
  • Somewhat rural area. No major employer.
  • Park pays W/S/T

Here is the real kicker, the current owners will not provide tax documents (obviously it is an LLC and has all of their other tax info AND they will also not provide bank statements to confirm these numbers. The reason that the owner gave was that his personal and business monies were co mingled into one account and he did not want to share all of this with me. That right there kind of makes me want to just drop the deal, but does anyone see a reason for me to pursue this further?

Thank you.

Your first two cons are huge cons. Also a SFH competition is fierce at $65k. Pass.

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@Brandon thanks. That’s what I was thinking but i just wanted to make sure there wasn’t a way to salvage the opportunity.

There is risk in everything. What is your potential reward? There is very little margin to be wrong in this scenario. If your RTO goes bad (some will) and you need to fill (you are counting on this) and you want to raise lot rents and kick out deadbeats and replace them, with paying customers, what is your source for that and what can you show them that beats the pants off the competition? Not this scenario. The seller has a “dog” and even at $50k (after you net out the single family home) what is your best-case, what’s your worst case and your expected case?

The gross income has to cover the cost of the 6 RTO and you have to do better than breakeven on selling homes you get in to the empty spaces. The variance in the POH business is much, much higher than your expected return in absolute numbers and the “good value” of MHP is the high return with relatively low risk. If you multiply your risk (more than 50% POH, plan to fill, no demand to point to) and decrease your return (low rent, low competitive prices) it’s a “dog.” Can you turn it into a “pony”? Maybe but it all hinges on demand – demand is what will drive rent up. Generally a MHP is super value but not rural area with depression. SFR will beat MHP in that case.

All that said, you could see if there is a better advertising than Craigslist to determine demand (such as the usual method, newspaper classified especially in the regional Sunday paper).

Brandon@Sandell

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@Brandon

I appreciate the additional input. I get that there is risk in everything. But I think the best case and the worst case scenario here make this a “dog” like you said. If everything went right it would be fine, but with the market being garbage AND the seller not supplying me with bank statements, too many POHs, etc. it’s not going to be worth it. I’m letting them know that I’m passing today and moving on to the next one.

This is small but might be in my market as I own a park in SE Indiana. If you planning to pass, please contact me. I’m PMing you my number. Happy to comp you if I do the deal.