What is the best method for handle park clean up and on going upgrade expenses put not to show a poor expense ratio when it’s time to sell. Lou
You can “capitalize” those items and they do not show on your profit and loss statement, but only on your balance sheet. You should get with a licensed CPA to do this correctly – you want to handle all of your accounting correctly and professionally. Even if you should them as a regular expense, a smart buyer will know that a turnaround includes a high expenditure on the front end, and then settles down to a lower figure. We call this “normalizing” the numbers, and we do this when we look at parks to buy ourselves.
I wouldn’t worry about it. I’d actually expense everything (and reduce the profitability and tax liability) right up front. Most of the parks we buy need cleanup of trash and/or homes (all expensable) and/or to have signs, fences, websites, water meters, or other significant CAPEX invested right up front (all capitalizable).
So long story short, our P&L (and especially our Cash Flow statement) look horrible for about the first 90 days. But after that, it all looks pretty good.
We’ve never sold a park, but we have refinanced. It has never been a problem that we had disastrous earnings and cash flow right after we purchased a park. It is probably just the reverse - it’s really a testament to how much we care about the residents and the parks and improving their safety and appearance.
We’ve always then proved ourselves and the communities for at least 12 months. We’ve then taken a year of good, normal earnings to the bank for refinancing, and have always been pleased with the results.
So just get the ugliness taken care of right up front and be done with it and then start cash flowing.
To your continued success,