Just signed a contract on a small park in the rural Midwest. Working on due diligence. Familiar with the town. Smaller community but a steady population with a strong industrial job base with good-paying jobs.
Asking price: $250,000
Accepted offer: $218,000
22 spaces
9 occupied TOH
11 vacant lots
City streets
City sewer (currently paid by park)
City water (currently paid by park)
Current rent gross per year: $37,000
Current expenses per year: $37,000
Lot rent: $350 water, sewer, garbage included
City government is on board with us, want to see it brought back to life, last couple owners have done almost nothing to infill or upgrade the park. They want affordable housing.
Good demand for housing in the area.
Median income: $64,000 a year
Meadian home price: $205,000
One-bedroom apartments start at $650 with heat paid
The remaining homes in the park are a mix of old and worn out, to mediocre.
My plan:
Change water, sewer, garbage billing to direct to tenants. The City may even take it on. Currently running $14,000 a year.
Bring in new, and almost new homes for sale to make it work.
Downside:
In an AE flood zone.
Poor cash flow in the beginning.
Big expense to infill. BUT I am a manufactured home dealer and can floor plan new units.
Just to clarify, it is stated that gross rent is 37k and lot rents are 350. If 11 spaces are vacant that means there are11 spaces rented- 9 TOH and 2 POH. That would be about 280 dollars per month per unit. Is there 70 per month in additional income bringing it to market?
Will the raggedy homes prevent you from getting new ones sold?
1000 per month per home for water/sewer/garbage would be crazy high for my area (Florida). How would the tenants go from 350 per month to 1350 per month?
It seems alright for the size of the community. Did you put in any park upkeep or capitol improvements into the contract? (i.e. paving/tree work/ overall landscape improvements) One of the best ways to attract more people is to beautify the community which is what we’ve found working in over 60 communities. Also doing this would enable a higher lot rent once completed.
Mike,
We are putting in some money for improvements. The main improvements needed are trees removal (only about 15 trees), signage, and general landscape cleanup.
If I am doing my math correctly, and to simplify the process, 22 lots at $350 with a 50% expense ratio, (because it’s a small park), means total yearly NOI of $46,200. At an 8% cap the value is $577,500.
With 11 vacant lots, the question becomes what will it cost you to fill them? If each home you infill is new, and it costs you $45,000 per home, you’ll need $495,000 of capital. You’ll get it back post home sale, but, each home will be worth more than the lot itself. Additionally. If you have to rent/credit the homes, you’ll get the capital back over time, but you’ll be into the park for more than it’s worth. Each lot, based on my math above, is worth about $26,250. Can you fill the lots for less than $26,250?