Lookin to buy park with partner and in putting pro form, and based on what I see, the expenses will be minimal. The utilities are read and rebilled by city, and they also take care of roads. With the exception of the maint charges to care for The few POH. Everything else is minimal,
I would hope to pla e homes on rent credit to elimi ate this expense. What is a good percentage to allow for expenses, we are gathering facts during dd and want to know if we are in the ballpark.
Thanks
I would use 30pct. But your mileage may vary. Could be lower but better to be conservative. How old is the park? What are the sewer lines made of? How much do they spend now on roto-rooter? Is the park in a hurricane or tornado area? Etc.
we have 30% in our pro forma projection, however we think we can knock a few percentages points off this. there are a few POHs that we will be looking to rid ourselves of during the first year, and this should help with the costs. outside of taxes, maintenance costs are the expenses the only ongoing issue seems to be the replacing of water lines from the street to the homes. This is being done as issues arise, and would continue this approach. what is the approximate cost to replace a water line per home. there are 60+ homes total.from what i see, the good areas people speak of are all in some type of disaster zone. franks likes tevas, ok, and the central us where tornadoes are a reality. How does the area affect your decision.I agree that FL and CA are off base, but because of price mostly. This park has its challenges from weather, but no more than other coveted states.
If you owned say 30 homes in a park would you deduct 30% for expenses before or after deducting for lot rent? Also, would you take out a different percentage if all you owned were homes in a park?ThanksJim
There are two business models out there. The one we like is where you base all of the numbers on the lot rent, and the park-owned homes (if any) try to cover their own bills, using only the differential of home rent less lot rent to do it with. The other model is a “mobile home apartment complex” in which the numbers are based strictly on the home rentals, just like apartments.If you go with the former, the value of the park is roughly the number of occupied lots x lot rent x 12 x .7 or .6 (.7 if the tenants pay their own water & sewer) x 10 (for a 10 CAP) plus the value of the homes (maybe $5,000 each in this scenario). The home entity (in which you would transfer all the homes at closing) would struggle to break even and normally post a loss, which the park owner would pay from profits on the lots.If you go with the latter business model, you collect the rents and the expenses are more like 50%+ – just like Class C apartments.
i was actually thinking as an owner of the homes used as rentals, but not the park itself.
The park has 58 lots rented and 10 POHs for a total of 68 home sites, all currently occupied. Lots are $150 with utilities billed directly by the utility provider. The expenses we can cut are trash and electricity. In working through the seller’s tax returns and in talking to the city, we know trash is at least $8541 a year. The trash is done with individual trash cans and the norm in this area is for the tenant to pay for their own trash. Our thought is that we could follow suit and have the tenants be responsible for this or at least try to negotiate with the city through the refuse service listed in the resources here. The other major expense item we could potentially cut is electricity. The security lights are not required by the city and they cost about $1260 per year to keep on. We are a little more wary about cutting this, but it can be done. As Dean said before, the city maintains the three major roads in the park. Capitalizing the reduction in both major expenses over 10 years adds nearly $100,000 to our park value. The major maintenance item over the last three years has been root intrusion to the sewer line. There are some trees in the park and this has caused a few problems. The current owner has a licensed plumber as his maintenance man/manager and this plumber has replaced about a third of the sewer with pvc as problems have arisen. He has also put a ton of clean outs all over the park to make his life easier.The market rents around town are $195 on lots, $475 for two bedroom mobiles, and $550 for 3 bedroom mobiles. These are the numbers we used in our test ad and we were able to pull 40 calls in 4 days with them. Dean and I have been reluctant to count the rental portion in our numbers, but the spread over the lot rent almost makes it possible to do so conservatively. We also followed Frank’s business model and had adjacent, vacant land included in the sale for future development. We can squeeze another 28 spaces on this land and it is already zoned for MHP and has water and sewer at the edge of the property line. It seems like a pretty solid park. Dean and I are getting this thing at roughly a 10% CAP when land and POHs are removed from the price:68x$150x84 = $856,80010POHs x $4,000 = $40,0007acres x $5,000 = $35,000Price = $900,000Our financing options look good too and most of the local banks are receptive to doing this deal at 75LTV to 80LTV. We still have some work to do on the numbers, but we are likely going to be sending the details of this deal in for a quick deal review in the next week or so.