Deal two I’ve researched this month.
Small rural park in a rural county with a trading pool of 43000 residents total. The local economy if centered on agriculture and prisons. There are 4 prisons in the area and the rest of the country side is dotted with farms. This park is situated very near two of these prisons and pulls a lot of residents from the staffs of each. Average starting guard salary $36,000/annually.
44 Lots Total
11 LOT Rents only
16 Empty lot’s with all hookups ready to go
City Water/Master Metered
Private sewer/Septic tanks
Underground electric service individually metered
Lot rent $125 a month and a little low for the area. Rental units go for $400 to $450 and all are full at the moment with rent being on the middle/high side of the local market for this type of housing. The park has all dirt/gravel drives and is full of pecan trees. It is clean and well maintained with all homes in decent shape on the outside. The owner performs all of the mowing.
I’ve talked with the guy and I’ve known him for a quite a while beside just this park investigation. He claims low maintenance numbers but frankly states his books are cooked to some degree and can’t be trusted. I’m visiting him again this week to chat and review them anyway. He knows I’m not actively looking to purchase anything at this time but he is still very willing to share his info freely. He is old and wants out of the business and may see me as a future prospective buyer.
I’ve split the rental business away from the MHP lot rents. I’ve just guessed at the ratios and have come up with the valuation below.
First the rental business which I priced at 70% of replacement cost of the homes. I calculated what I guessed the Rental NOI would be for me but did not include it in my purchase price only as cash flow.
17 POH’s X $7000 = Rental Business Value $119,000
17 POH’s X $290 (Avg Rent - Lot rent) X 12 months - 70% Occupancy - 40% Expense = $17,748 Rental NOI
I knocked the LOT values down to a 12.5% cap due to the road being unpaved and trees which need some work. Also with all of those pecan trees there has got to be some deferred maintenance or ongoing cost for septic line clean outs.
28 LOT’S X $125 X 12 Months - 90% Occupancy - 35% Expense = $25,200 LOT NOI
$25,200/12.5% Cap = $201,600 Lot Value
$42,948 Total NOI - $16,522 Debt Service = Cash Flow $26,425
$119,000 Rental Business Value + $201,600 Lot Value = Offer Price $320,600
Improve cash flow by getting expenses down to around 35% through passing on water cost and raising lot rents gradually. Bring in 5 additional homes and begin selling POH homes on terms of some type or manage the headache of rentals for the cash flow bump. Establish 33 occupied lots with 35% expenses and $175/month lot rents. Sell for 20% cap of original purchase leaving some upside in the park with undeveloped lots.