The MHP is in a great location with high demand and good demographics.
City utilities. Master water/sewer.
Price: 720k cash. (NOI and occupancy to low for lenders)
Lot rent: $250 (Market rent is $275-350)
Occupancy: 39 Lots out of 120 spaces.
Expenses: 100k. Most being fixed costs.
Current NOI: 17k
39x250x12= 117k (Gross) - 100k (Exp) = 17k (Net)
Cap rate: 2.4
Potential NOI: 300k
120x300x12= 432k (Gross) - 132k (Exp) = 300k (Net)
Game plan would be to fill 81 lots. Bring rents close to market. Refi and pull cash out in the meantime.
Out of a 100 parks in the surrounding areas, all of them are around 95% plus occupied.
Test ads with homes for sale $799 a month gets around 10 or more calls a day.
Local 2br apartments go for around $900
Local dealers tell me they can usually fill at least 15 homes a year, if a park owner is willing to pay for moving costs and lot rent until it sells. Typical moving and set up costs are around 10-12k per home according to the dealer who floor plans homes in parks.
I would like to work with the 21st Cash program but they say they can not give me any indication if they will work with me or the park until it is in my name.
If they can not work with me, then I plan to work with legacy, local dealers and purchase used homes.
Assuming 10k down to bring in a home though legacy.
I would have to invest 200k for 20 homes.
Purchase Price (720k) Plus Homes (200k) = 920k total investment.
39 Homes +20 Homes = 59 Homes paying lot rent.
So I would have to bring in 20 homes and boost rent by $15 to get to a solid 8.5 cap off of my investment. (Good amount of work involved)
Of course from there I can bring in another 61 homes and raise rent over time.
With Legacy, my 10k investment will most likely be paid back in full in 3.5 years from lot rent.
Using the cash program, I will be receiving full lot rent after 5 years.
Over time if I filled up all 80 lots and paid off my investment in new homes.
I would then be left with 120x300x12=432k x.7 = 302k
This would be a 2.4 cap to a 41 cap.
Or increase my 720k property to around 3M
OR if you look at like 720k for the park, plus 800k for 80 homes financed. Total investment is 1.5m
then it looks more like a 20 cap.
Or increase 1.5m to 3M
Ideal situation would be to work with the cash program. Bring in 30 homes over 1 - 2 years.
Refinance pull money out, then fill the remaining 120 lots.
Seller won’t drop his price. He says the land is worth that alone. His most recent appraisal for the property is around 1.3M. He understands the business of filling lots and the upside in this deal.
Is this deal worth all the effort and capital commitment? Is this a pass or a go? I would rather be coming in at a 8 cap from the start, but the upside is worth something. Is it enough to justify the price?