Jhutson: Exactly. That is what's bothering me. The park is way over priced when I use the metrics I've learned on this forum and the DD manual, but... when viewed "in another way" there aren't any rentals (rehabs, bare lots, etc) around here that can match the upside returns on this overpriced half empty mobile home park. If I was willing to invest outside my local area it seems common to find much better deals on already filled TOH parks. But since I want to stay local (for the time being) I'm chasing fewer and fewer good deals on single family/mutiplex/small apartment buildings. Good point about "if it could be filled it would be filled". The "story" about the elderly owner as the reason for the low occupancy.... well, possible but not very plausible. I'm just starting the due diligence and haven't obtained enough info to even make an offer. All the info I have so far is from a "bird dog" and a brief conversation with the owner so their assertion that the current income would cover expenses and the new debt service will need verification. Thank you for your insight. I see your replies on a lot of posts and appreciate your time and willingness to help.
Louvie: My apologies, I didn't express myself all that well. You are of course correct about the 6% return. I didn't explain that a return of this type ($200 per month on a $40k investment) is better than apartment rentals around here and I was using that as an example. It is common to have apartments costing a unit price of $50k or more and only have a positive cash flow of $200 so I'll take that 6% as often as I can get it. However, this overpriced half empty mobile park appears to offer much higher returns than that. I'm sort of "cheating" by intentionally not viewing the property as a whole but simply that if (a big IF) the existing income covers all the expenses (debt service, utilities, taxes, insurance etc) then any additional unit brought on line for $10k (POH rehab) or even $20k (used mobile brought in to be a POH) the returns are astronomical. Anything "to good to be true" worries me, so thank you for your thoughts. The space rent of $385 seems high to me also. Of course I need to call all the parks around and do a market survey. I do know from talking with a fellow member of the local Landlord Association who owns a mobile park that there are very few empty spaces and most parks are full around here.
I have some under-performing assets that just break even and they have no upside. I could sell those assets and roll that money into this park. I would then have an under-performing asset but now it is an under-performing asset with 43 unused spaces of potential upside. This is what I meant by "when viewed like an apartment investment or like empty sub division lots" this is the best deal out there by far. When viewed like a mobile home park investment it sucks! -lol. Hence my consternation.
If (there's that big IF again.... more due diligence required), IF the existing TOHs cover current expenses which include the debt service on the empty lots AND I factor in 30% expenses on any additional income, THEN any additional unit brought online would have a 23% ROI ($550 rent X 12 X .7 / $20k), or a ridiculous 46% for rehabed existing POHs ($550 x 12 X .7 / $10k) The "X .7" is the adjustment for additional expenses like insurance, utilities etc., for the additional unit. So my initial $250k down payment just "buys me into the game by swapping one under-performing asset for another" but it thereby allows me the "privilege" of being able to earn an excellent return on any additional investment. It is sort of like a bank saying "deposit $250k and we'll pay you 1% interest, however, on any additional money you deposit we will pay you 21% interest". It irks me, though, that I would definitely be buying "damaged goods" as you stated. I will update when I get more info and can discover accurate income and expenses.
My head hurts, when does the fun part start? - lol