talking on a park where there are approximately 18 spaces with water and sewer available, and work stopped here. The present owners want to include the land in the deal and have asked for an offer. They have asked I put a price on the on the occupied lots and a price on the 18 partial lots. What is the value of these 18 lots … my thinking is to place zero, or minimal value, on these 18 lots. This is a nice park, and would like to see if I can make this work. The utilities are city with water billed on a single meter with the park reading and billing back the residents.Should I start with an offer on the NOI using 40 expenses and a 10 cap? This is a nice park, newer homes, and lots of pride of ownership.Thanks in advance, I will be sending my offer tonight to start the discussion.
The lots are worth zero. Think of what you will have to spend to make them income producing:1) the cost to finish out the lots2) the cost to put homes on these lots3) the marketing cost to get people in the homes4) the cost of carrying this capital until it is recoupedYou’re talking maybe as much as $40,000+ per lot. How can you add additional money on top of that in the form of paying for those lots?On a 18 space park, I would use an expense ratio of 50% as you have too many fixed expenses that will take up a greater ratio of the revenue.And a 10% cap rate should be more like a 12%, unless the current lot rent is below market. Small parks normally sell at higher cap rates.
Frank,That was the answer i expected, i actually shared this with the seller during our original discussions. I told him the cost to make the lots useable would be high, and I could not pay for lots. He was not interested at the time. Fast forward a week, and now he wants an offer on the 29 occupied lots and the unfinished 18 lots. This is a nice park, lots of pride of ownership, nice homes, city utilities with a water bill back, and a good manager who will stay on board. The lot rent is 250 and can go to 275 immediately. This would be an excellent park to cut my teeth on.Whats you starting offer Frank?thanks in advance
I would offer 29 x $250 x 70 = $507,500, which is about a 12% cap rate. He’ll probably counter back at $700,000, and you may be able to meet in the middle at $600,009, which is a 10% cap rate. That being said, you know much more about the seller and the deal, so my numbers are a loose guideline, and you’ve got to use your own judgement. You want to go in low enough to get a counter – you’ll have to decide how low you can go on the offer. I thought this park was only 18 lots, not 29 – that’s why I said to use 50% expense ratio, If this park is as nice as you say, and is sub-metered, then you might be able to get away with a 30% expense ratio if you are a real miser.
Frank … Thanks for the advice, I agree I want to have some room to negotiate. To be clear 29 lots with 18 expansion.
I probably go in around 525 and look to negotiate from there. The seller and I have hit it off, and I hope to use this to my advantage. The individual selling is the broker, not the owner.
He park is on market due to one of the owners passing and I will use the ability to close quickly to my advantage.
Sounds like a good plan to me!
Dean, do the 18 Partial Lots have the Zoning of Mobile Home Park?Or do only the Finished Lots have the Zoning of Mobile Home Park?The Partial Lots will only be a burden if you are not able to legally complete them in the future.We wish you the very best!
The zoning is in place for the 18 lots. My concern is the return on my capital required to build out the lots. I may be able to do this build out n small chunks, the demand is there. However, this park is presently a little choosy about homes brought into the park. These are not extremely expensive homes, the plan is to prevent the pre 90s homes being brought in.I will have an answer today on my offer, and will work to make this one happen. My path to my first park feels like a roller coaster ride, up, down, up, down but I like the ride.thanks
Dean, we wish you the very best on your Offer!That is great that the Zoning is in place for the 18 Lots. Have the Local Government put in writing the Zoning for the whole MHP during your Due Diligence Period.You had indicated that the MHP is on the market due to one of the Owners passing.How long has the MHP been on the market? If not long, they might not be ready to ‘really’ negotiate.BEFORE you get the answer to your Offer today write down on paper the Maximum you are willing to pay for this MHP.Be willing to negotiate up to your Maximum price. However, do NOT go above your Maximum price. If they want more than your Maximum price, politely tell them that you have given them your highest and best price. Thank them for the opportunity to bid on the MHP and be willing to walk away (leave them on positive terms).If you have to walk away, periodically email or call the Broker just to let them know that you are still a Buyer (just at your price and not theirs).We wish you the very best!