Feedback On Potential Deal Please!

Hello, I am looking for opinions on a potential purchase. I spoke with the owners of the park for about an hour the other day and I am interested in the park but I have not purchased a park for around 5 years and the market has changed to say the least.

The deal is two separate small parks separated by one parcel between them totaling 38 lots. It’s in a good state, 150,000+ metro and $170,000+ median home price. 3 bedroom rents are $1,500+.

The park has all city utilities, water is submetered. It is a clean park with mostly 1990’s homes, cement parking pads and sidewalks and asphalt roads. PVC water and sewer lines and underground electric. Park is fully occupied save for two park owned homes being rehabbed. Lot rent is $375 and includes lawn work. Market is $400+

There are two RV’s in the park. They are asking 1,595,000.

I like everything about the park except it is separated by a parcel and it’s less than 40 spaces.

Asking price seems a little rich to me. What are your thoughts? My basic math is 36 lots x 375 x 12 = $162,000 gross x .6 = $97,200 net

He does sub meter water sewer but I always use a 40% expense ratio even then.

So at asking price would be a 6 cap. Now it’s a strong market so the two vacant homes being rehabbed can easily be rented and rent can go to $400 day one which would change things to a 6.8 cap day one. Still seems expensive to me but I know caps have come down since my last purchase. Thoughts?

Using a $1,400,000 purchase price and day one numbers I’m at a 7.8 cap. What cap rate is appropriate for a park such as this in today’s market?

Thank you,
Jason

I

@JCas06 ,
If you feel comfortable at $1.4MM then throw them an offer.
One of my rules of thumb is a 10% rule. If my opinion of value is within 10% of the asking price then I put in an offer.

Paying a 6% cap really depends on the market. CA vs Kentucky things will vary wildly.

Another strategy is to offer the $1.6MM contingent on an appraisal. If the appraisal comes in low you can retrade the deal.

Looking over a 30 year time period, 2021 prices are historically high. But the Cost of Capital is historically low. If you can lock in 10-year fixed financing that would be great.

Sounds like a limited upside deal more of an established park. Operations will be easier as the park sounds turn key. If you are looking to score a deal this park doesn’t sound like a good match. This guy has a nice park and knows it.

2 Likes

@SDGuy thank you for your thoughts. Yes it is a limited upside park. My other park still has 24 vacant lots which I have been slogging away at over the years so not having to fill lots doesn’t bother me but that’s also less meat on the bone like you said.

In regards to the California vs Kentucky cap rate example I will say it’s not a California or Florida or Colorado. It’s not east coast it’s not west coast it’s a strong middle of the country state that is well regarded by park investors I would say.

Wow, 24 Vacant spots.
I hate Vacant spots.
Sounds like you need to kick that into high gear and get those spots FULL!

Whenever I buy a Park I put together a RaceTrack. The racetrack is my plan and purpose for getting the park up to my standards and most importantly FULL.

Sample Racetrack

We just closed on a 2 park portfolio with 20 vacancies. In the first 30 days, we filled up 5 spots. My plan is to have the spots full within 24 months. My goal is to have them full in less than 12 months. Once completed I am going to buy myself something off my bucket list. I figure the upside is about $2.0MM or so. I will probably upgrade my RV from a Dolphin to a Phaeton. Whatever the reward is it will be a 6 figure reward.

I am not sure what motivates you but I am sure there is something that you can put on your list of “It would be great to have one of these” Set the item as your reward for filling up the park.

I don’t know what your rents are but just say they are $400/month. You are walking away from $9,600 a month. Plus the added value to your net worth.

Let’s get it FULL!!!

I would be interested in how you get your vacaencies filled quickly? I have been trying to find homes and have been striking out. Do you purchase new, advertize? If you could PM me I would appreciate your thoughts.