I’m looking at a cash flowing park with 28 spots, cap rate of 11% however it has 5 wells.
The park cannot be hooked up to city water but the financials and demographics checkout.
Thanks
Not sure why you would need 5 wells for 28 homes. Could be to doge testing requirements but the cap ex is going to be more than the lab work saving. Not to mention the operating drama…
Check out the due diligence resource I put together for drinking water systems.
Feel free to give me a call if you have any questions or need help. We offer a 30 min free consultation for drinking water and wastewater questions
Or the 5 wells are because there are pretty serious issues with quanity or quality of water in the area
Anyone living outside of a city is familiar with having to work with a well. As long as your due diligence checks out and you confirm with the owner, residents and local authorities that the water supply has not been an issue in the past then having wells is fine.
We look at the “exit strategy” on every park we buy, and some things make it extremely hard to sell or finance a mobile home park (those two are tied together unless you plan to seller carry yourself). At the top of the list are private utilities (as well as flood plain, weak market, high density, master-metered gas and electric, Phase I failure, having no permits and title/survey problems).
That being said, it’s easy to be a deal killer and much more challenging (and profitable) to be a deal maker. So here’s what we’d require to consider a park like you’re describing:
Make sure the wells are working fine and that you fully understand them and their operating requirements (testing, licensing, etc.).
Make sure that every thing else about the deal is fantastic (infrastructure, density, location, etc.).
Have the seller finance the deal on a 30 year ammo with at least a 10 year term or longer.
Put very little money down that you can recoup quickly just in case the deal does not work out.
Get a much higher cap rate than 11% (although I don’t have enough details to say that – but I’m thinking at least a true 12% cap rate or more).
Unfortunately, I’ve not seen the deal or the economics, so you know much more than I do. I think your question is “if it has 5 wells do I punt” and the answer is “not necessarily, but likely”. It all depends on all the other parts of the puzzle.
We are of the opinion that there is no perfect park, Even the finest parks on the beach in California with $2,000 lot rents have terrible infrastructure issues because of their age. So often you are faced with overcoming one or more blemishes that can be pretty significant. That’s just part of the business.