Deal Analysis - High vacancy park

I am looking at a 105 lot park about 40 minutes from Minneapolis in a high demand area.  The park has been absentee owned for about 10 years and the last 5 or so has gone downhill considerably.  There were 67 houses in the park a few years ago, now it is down to 37.  My understanding is that a flood caused some houses to move out and the remaining left because the park manager drives people out.  The owner wants $650k for the park, no seller financing.  Lot rent is at $300/mo for 37 lots.  Park has well and septic with city hookup available for the park (I need to find out more details about the cost to transition to city).  I posted a Craig’s List ad for $599 for 2/3 bed mobile homes and I got 10 calls the first day, so I am confident there is demand to live in this area.  My concern is the cost of getting houses in there.  The owner currently shows only a $35k net income on the park due to its high vacancy.  Property taxes are at $18k/yr taking a pretty big out of income and there is also a caretaker on staff at $12k/yr.  It looks like I can reduce expenses by $20k fairly quickly getting the net income up to $55k. My question is how to value a park like this?  If I valued it at a 10 cap based on the net income from P&L it would be worth $350k.  The owner will not come down to that.  If I value based on the lot rentexpense ratiocap equation the value is much higher.  37lots*$300/mo0.612*10 = $799,200.  So, which should I use???This park has a lot of upside, but I’m just not sure how to value it.  Any help would be appreciated.Regards,-Jaden

Well, first step is to come to the next bootcamp and learn all about the expense ratios by line item that you should be looking for.But something sounds way off on these numbers.  The NOI should be a lot closer to 3730012*.7=$93k.Replacing a bad manager with good can go a long way to improving life for your residents and your profitability.But why bother with a property on well and septic?  I’ve done it myself, but it was in a park with more upside than yours.  As a general rule, I would not recommend a ‘newbie’ buy anything other than a park on all-city utilities.  Make easy on yourself the transition into this business.To your continued success,-jl-

Jaden are you in MN?

BWK, email me if you want to discuss further, jagy23@gmail.comAre you in the MSP area? -Jaden

Jefferson, I went through boot camp in Nov.  The problem I have is that the parks expenses are much higher than our calculations would predict them to be.  Do I pay 10cap on current income or 10cap on expected income after expenses are reduced?  It seems to me that I’d want to buy at 10cap based on current net income. -Jaden

I would prepare all offers on demonstrated performance. A smart gentleman on e told me buying on potential will lead to failure more often than not.

I will.