I need some advice on a park in the midwest that I have under contract. I just made my due diligence trip to visit with the sellers. Like a lot of original owners, they developed the park and are quite old which has in turn provided lax tenants making payments on time and overall mgmt due to heath issues and time devoted to the park. They have outgrown it and it has become an issue to deal with. The downsides I found from my original inspection was that there are 3 more vacant spaces than I originally thought - with 2-3 possible homes that are currently lived in but could use a tear down in the upcoming years depending on your quality of ownership - and there are ten 3rd party/investor owned homes in the park.
23-30 rented - lot rent $100 each - no POH’s
City Utilities - Tenants pay all utilities
Purchase Price - $110,000 + all closing fees (2-3k) - financing approved ($105k loan amount - 15yr. am. - 5 year balloon - fixed @ 5.5%)
My plan would be to raise lot rent to $125 and also consider putting more funds down upfront to reduce the loan amount but would like to save some reserve money for issues and homes.
Seems to have a good yield even with the vacancies - lot rent increase, new mgmt and systems, new homes over time are only upside.
The amount of cash to put down on the deal is minimal which enables a nice cash on cash return. (leveraging other properties if needed to reduce down payment if needed.)
All city utilities and the tenants pay them direct. The main objective is to keep the park clean and successfully put a rent payment and rules system in place while filling vacant lots over time.
I think the park could be nice with new rules, mgmt and cleanup. Just not sure how much money it will cost to get there. It is not bad now, just mainly mgmt cleanup and new systems and rules.
*The Sellers have no idea whom the tenants are living in the homes that are owned by investors but lot rent is paid.
*The amount of 3rd party/investor owned homes is concerning regarding the risk of abandoned homes if lot rent is raised or the home owner’s tenant moves out, which would cost a lot more to repair/replace home for new occupancy.
*I don’t have a TON of reserve cash right off the bat to fill the park with homes (7 vacant). To increase/maximize cash flow and return money needs to be spent.
*Raising lot rent to $125.
I am sorry for the novel but would like some advice on the deal and mainly the concerns I have posted. Also, a big thank you to Jefferson for his help over the last few weeks.