I’m looking at a deal that involves a two park package deal:
Northeast United States
Both parks are located in the same town (population 8,000)
Part of a metro area with a population of 500,000 (Not near a major US city)
Average 2 bedroom apartment rents at $800
First park located on 40 acres
22 lots, 100% occupied, 21 tenant owned and 1 park owned
Public sewer, private well
Tenants pay the sewer
Lots rents are $155 (Market lot rent is $250)
2nd park located on 4 acres
38 lots, 34 occupied, 33 tenant owned and 1 park owned
Great location in nice area of town
Old trailers (assuming 70’s models), small and crowded "trailer park"
No offstreet parking
Public water and sewer
Park pays water, sewer and trash
Lot rents (31 are rented at $175, 2 are rented at $225 and the rental is $440) Market lot rent is $250
Owners want $775,000 and are willing to cover half the down payment but the terms have not yet been discussed. They are representing a 9.5% cap which I don’t believe to be accurate at $775,000. They are showing a 40% expense ratio for the 22 lot park and 37% expense ratio for the 38 lot park. My valuation tells me the park is worth around $700,000.
I can’t see getting this deal at a 10 cap so I will have to raise rents quickly to get the return I need. I’m not a huge fan of the private well on the small park but my bigger concern is the 38 lot park is old and crowded. I’m concerned I will have a difficult time replacing these old trailers over time. The lots on the perimeter have a bit more room but the trailers in the middle of the park are very small (I haven’t measure them yet) and really no room to increase the size so I’m pretty much stuck with the trailer size that is already there.
Thoughts or ideas?