I am looking at buying my first park which I have under contract. This is a park with theoretically 130 spaces of which 72% are occupied. However, the lot widths are 27ft and since trailers by city code must be 15 feet apart, the spacing will have to change. Lot rents are $185/trailer which is $25-40 less than parks in the area. The lot only NOI is $135,000/yr. There are 10 occupied POHs. There also is a C-store with 5 years on a lease. It has 2 tanks which are 40 yrs old. There are other issues which to bring the park back to city code, which they are demanding will cost almost $500,000 over time. The city is not requiring that all issues be resolve immediately. They just want to see how they will be resolved over time. Monthly lot rentals total $18,320/month including the c-store income. $219,840/yr. Expense ratio is 43%. All bills are paid by tenants. Water is submetered.
219840*.57/.12 = $1,044,420
How would you value this park considering the large number of repairs which need to be done to bring it up to code? Would you deduct the entire cost of what these repairs/improvements are going to cost? I am insisting that the tanks be removed before I would close the deal as the likelihood that these tanks have leaked is at least a 50-50 proposition. I also figure that the park legitimately does not have more than 105-106 spaces which at that density could accommodate 16 by 76 ft homes.