Hi I completed the Bootcamp several months ago and have recently run across an opportunity. I need some help with a 2nd set of eyes and advice. There could be a partnership oppotunity as well. The park is in Arkansas. My cell is 405-204-1715 Thanks!
Rodney, please tell us a few basics then we can talk on the phone. How many lots, how many paying units, and what is the lot rent? That should be good to start.
Thanks
Asking $1,000,000 ($33,333 per lot)
Great location/Built 1990
City water/Sewer/gas ( all paid by tenants)
Trash paid by the owner
30 lots
15 TOH- $160
10 POH’s$400-$650
5 vacant lots
Gross Income-$96,246
Expenses $25,506 (27%)
NOI-$71k
If I take 25 lots x $160 per = $48,000 Gross lot rent 30% expenses = $33,600 NOI
at a purchase price of $1,000,000 that’s a 3 cap :o
The homes are mostly late 90’s
3- 14 x 65
2- 14 x 70
2- 16 x 80
1 14 x 50
1- 14 x 55
1- 12 x 20
Questions on formulating an offer:
What should I value the homes at?
What should I factor in for infilling the 5 lots -$10k each ($50k)?
Should I have already run rent comps at this point to see if I can raise rents ?
If I put down $300k and financed $700k @ 5% for 15years I’m negative cash flow.
So how would I formulate an offer based on a reasonable cap rate?
Sorry so long
Go on FB Marketplace and find similar homes in the area in similar condition with the same bd/ba to find out the value. Find a few of each and take the average. Then multiply the average prices by .75. This will give you the retail value of the home which is the price you should buy them at. The park owner might argue that they are worth more. Tell him you deserve to make money on reselling the home and buying them at the end user cost doesn’t allow you to do that.
I don’t factor in a cost for infilling. I add that cost to the sales price of the home I bring in.
It depends - but I would run the comps asap to see if I can raise rents. If so, the deal could be a lot better - but there is always risk that you could lose tenants when increasing rent.
If you are able to increase the lot rent by $100 this park looks a little better, still not a great deal for a small park though imo. If you carve out the cost of the homes, say $100k or so, it looks even better but still not a great deal. A bank probably won’t lend on this park at it’s current cost… and they won’t lend on proforma.
I would try educating the seller on why he is asking too much money for this park - it’s unlikely that a bank will lend on it because it’s got a negative cash flow - there is risk with raising rents - the homes have limited value - it’s a small park in AR - his expenses are likely much lower than yours - the market rate for a park like this is much less than what he is asking - etc.
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Great information. Thank you!