Deal Evaluation

I’ve been doing due dilligence on a park near my home. Owner inherited park and wants it gone.

Park has 130 occupied homes, 10 are POH. Assuming all rental income is used for rental expenses.

Lot rent is $300

Master Metered Water

A few vacant homes that can be sold as is or repaired and sold for minimal costs.

130x$300x60 = $2,340,000. Offer is open to seller financing. Asking price is $2,300,000.

Income:

$400,000 (avereage over past three years, supposedly hire now)

Expenses:

Taxes: $50,000

Insurance: $60,000 (incredibly high due to slip and fall claim, I’m in the process of getting quotes from other providers)

Trash: $17,000

Maintence/Wages/Payroll Taxes: $100,000 (again, super high and can easily be reduced with better management)

Water: $10,000

Repairs and Maintenance: $50,000

Permits and Licensing: $3,000

Net: $110,000

I have yet to go to bootcamp, so I may be missing something in the numbers. Any advice or tips are greatly appreciated. My experience is mainly with multifamily buildings.

Those expenses do seem high, but the water seems low. I would figure the water would be closer to $40,000 in a park that size.

I’m not an authority on the MHP biz, but I do understand arithmetic.

There’s just no way it can pass the “Sensibility Test”. With a 2/3 LTV loan, there’s no way you can make the loan payments out of 110K. The loan pmts, alone would probably be 1/3 more than that…

Here’s my approach to a sensibility check: Start with the income you require. Add the payments that the park will support In addition to the income required. That is the cash flow required from the park.

If the park won’t yield that cash flow, you must buy the park at a lower purchase price, so that (after down payment), and after annual debt service, you’ll still have the income you require.

If you can’t make a deal on that basis, it’s best to move on.

Also keep in mind that it’s always better to allow for unexpected results that are worse than you plan. An $80,000 income can quickly become a $50,000 income (or worse).

And always assume that the figures provided by the owners are lies. Ya gotta pass those figures through a “common sense” filter, and add expenses that they “forgot to mention”, or “didn’t amount to much”.

How many total lots are there?