Deal analysis

Hi everyone,I was hoping to get your opinions on a deal that I am working on. I’ve already had a few deals fall through already due to issues uncovered during DD, but so far it’s been a good learning experience.Here’s the breakdown:1. 38 lot park, with 35 pads occupied2. 30 of the occupied pads have park-owned homes3. Monthly lot rent of $225, with a $50 early payment incentive (which is exploited by half the tenants; I’d eliminate this option) - this is about average for the area, with no real upside to the rent4. All utilities directly billed to and paid for by the tenants5. Paved road, owned/maintained by the park6. Public utilities. and the city is responsible for maintenance of the sewer lives (only the connection under the trailers is the responsibility of the park)7. Area mostly populated by SFRs, with potential for future development8. Park located across street from fire station, and well-located to local amenities9. Small city of about 55,000 people north of Macon, Georgia; good demand for affordable housing in the area10. No seller financing available11. Park had been managed by owner; there is currently no on-site managementAssuming the above, I figure that the park (excluding the homes) is worth $225 x 35 x 12 x 0.7 x 10 = $661,500The owner is willing to do a deal at $680,000 (this is the absolute bare minimum he’ll take, and it’s down from $810,000), and I would also gain title to the 30 mobile homes. To be honest, I have absolutely zero interest in the homes themselves (some are older, etc…), but I figure that I can buy them, then immediately sell on a 24-36 month deal to the tenants on favorable terms. In doing so, I’ll get rid of the maintenance headache plus I will presumably be the “hero” to some of these tenants if I give them pride of ownership (might not be the case universally, but let’s assume it is for the most part).I would have to hire a property manager/landscaper to take of things and collect the rent (I don’t live near the area), but I still think it looks like a reasonable deal. This is, by far, the nicest of 5 parks in the city, and the owner has kept it up fairly well. He’s just getting older and doesn’t want to deal with it anymore (or so he says).What do you folks think?Thanks in advance.

30 park owned homes? So what is the space rent in the area? You are basing your value on the rental amounts for the space and the home- which is a huge no-no. 

Selling 30 homes is a big deals since you will have to hire a manager to deal with the sales and the homes you will get back.      Why not find a park without the rentals that has low vacancy.     There is a reason for having a high number of rentals–is the demand weak for owner homes?

Sorry - I should add that the $225 is ONLY for the lot rent. The trailer rents vary from $175-300 per month, but I have ignored this in my valuation, since I don’t even want the homes.

In terms of why there are so many park-owned homes, the reality is that this owner bought the park years ago and moved in his own homes over time. He didn’t mind doing the maintenance, so he never pursued a rent-to-own program.

As well, I can’t get a tax return because it’s in an LLc with five other parks. He is willing to get his CPA to validate the park rents/income (not a full blown audit, but some kind of report), so I’m fairly certain the revenues are there.

SteveF,You did put that the $225 was only for lot rent in your original post – not your mistake.The deal does not look crazy at all based on the numbers you have presented. The real value would be determined in due diligence through the results from a test ad, a thorough review of market rents, and an inventory of home conditions and cost to renovate. Your best case would be that the 30 homes are worth $10,000 each (this is probably fantasy but worth pointing out) so you’re only paying $380,000 for the land, and then the market rent is not $220 but $280.Personally, I’d tie it up and do diligence on it.A big part of this deal is also the financing portion. Will a bank loan on this park? You’ll only find out when you start hitting banks. It’s right on the cusp of being too small for Security Mortgage, but I’d give Pierce a call anyway at (585) 423-0230.

Sent you a message, Steve.

Thanks Frank. I will give Pierce a call, and I’ll let everyone know how this turns out.