Deal analysis

Hi folks,Long time lurker on the forum - it’s been a fantastic resource for me so far.I just put my first MHP under contract (it was a last minute thing, so I had to act quickly), and I was hoping for some feedback on it.1. 40 lot park, with 29 occupied pads (all tenant owned) and 1 occupied SFR.2. Average monthly rent of $240 per pad (plus $400 per month for the house).3. Tenants pay all utilities (city connected); the Park is on the hook to the utilities, but these are all metered and charged back to tenants on a monthly to the tenants4. Road is paved, but privately owned by the Park5. On-site manager who gets free rent in exchange for keeping an eye on things 6. All-age family park, with all but one of the pads as singlewide 16x807. Located near Akron, Ohio in an area with decent economic prospects8. Mostly long-term tenants in place9. No seller financingI don’t really live near Ohio, so managing it myself (even to collect rents) is a no-go proposition. I figure the value of the park is as follows: 28 pads (excluding free manager pad) x $240 x 70 = $470,4001 House x $400 per month x 25 months = $10,000Total value = $480,400The above analysis excludes any rent increase (comps are $275 in the area, so I have room to increase the rent $20-30 per month), and I put it under contract for $475K (60 days DD & Financing, with agreement from seller to extend 30 days financing if I have a letter from the lender that the loan process is moving forward). I don’t think it was a steal, but this is absolutely the lowest price the seller would take (barring an all-cash offer), and it’s already down almost 20% from his initial asking price, I think it’s a fair deal (not a bargain), but the park seems in decent condition and well-managed, so I’m willing to pay a slight premium for that.What do you guys think? Thanks in advance

Steve, good start–do not understand your number 3 item that you are still on the hook if tenants do not pay??? One concern is the efficiency of size and who will want to buy that size park in the next 10 years since the cost for a manager is similar for 15 sites or 50 site park and your midnight calls can some times be greater will a small park.

Hi Carl, the usage of the utilities are sub-metered for each resident, but the bills are sent to the park, and the owner invoices the residents for their metered usage. I’m not very fond of this approach, and I’m not sure why he hasn’t made the effort to just have the bills sent directly to the resident instead of the park. Maybe he just hasn’t actually tried to do it yet because he already has the invoicing system set up, but I’m going to try and remove this extra layer of invoicing, because it seems like an unnecessary headache.I agree about the park size, and I’ve been trying to see about buying something bigger, but this is a decently run park that’s in good condition, and it came up at a good price. I’m not looking for a significant turnaround situation, so I have to take it as is.

The city probably won’t bill the tenants directly because it’s a bad deal for them to do it.  They only have to send one bill to you and you own all the meters.  You might as well try to get them to take over the billing, but I wouldn’t get your hopes up.A 12% CAP is pretty good though.  It looks like you are getting a good price and you have plenty of upside.  Also, I wouldn’t worry about the size of the park.  It’s a little small, but you aren’t small enough that it’s going to have a major impact on your exit.  In fact, 30-100 spaces seems to be in a lot of people’s sweet spot on this forum.By pushing your rents on day one, you are effectively making this a 14 CAP and that ain’t bad.  Apply the right kind of leverage and this park should yield 25%-30% on your down payment.  Most people would jump all over that and feel pretty good about it.  Add a few homes and this should be a very good park for the money you are paying.My biggest concern for you on this is going to be financing.  At 73%, you may run into some problems with that.  Now that it’s under contract, I would definitely start calling all of the local banks and feeling out their comfort level.

I think the deal is okay, and I have more than enough cash to put down a good deposit. My goal is a 20% cash-on-cash return, but I need to arrange the right kind of financing. I’ll call up local banks and credit unions around that area, but are there any mortgage brokers anyone would know of who could help with a relative small (<$500K) mortgage?

For something this small, I doubt too many brokers would take the time to do much for you.  Usually every town has that one bank who has done parks and likes doing parks.  If you put together a list of banks and set aside an afternoon to call all of them, you should find 2 or 3 that would love to put together a loan for you on this.