Hi all,If you have a moment to spare, I’d like your thoughts on an investment I am considering. Please share any and all concerns. Really appreciate all the help available on this forum. I bought the Due Diligence binder a few weeks back which was a great resource. I have a lot of real estate experience, just not with parks.PARK INFO30 lots + 1 single-family residence21 lots occupied by a home (3 of which are POH; see financial info below) MARKETWestern USCounty seatMetro Population = 140,000 (and rapidly growing)Median Home Price = $180,000Avg 2-3 Bedroom rent = $750-$1,025Unemployment <4%Park located a little less than 20 miles outside metro centerNo great nearby amenities, but WalMart is 5 miles away, grocery 1 mile,
etc FINANCIALRevenue7 park owned homes (4 vacant, 2 duplex homes rented out, 1 provided to manager for free)5 vacant lots18 occupied lots (not POH) pay on average $271/mo ($200-$400 range, $250 median)Single-family home is demised into two units currently rented for $350 and $400 per monthI think the SFR could be put on its own parcel and sold for $80k Current in-place revenue $79,000 ExpensesCity gas/electric billed direct to tenantsCity water/sewer master metered to park owner. Not currently reimbursed. $6,000/yrR&M on POH = $9-10,000 (I think this may be capex on the 4 vacant POHs)Management = $400/mo + free lot rent (free lot rent excluded from revenue) Current in-place expenses = 44% of in-place revenueNOI = $44,250 OPPORTUNITIES1) Reduce the recurring capex/R&M expense by selling those POHs. However, I have not done any DD yet and don’t know how bad they are. I also need to read up on SAFE/DF compliant sales methods or plan on giving the homes away for $1,000.2) Submeter the water to the tenants and bill back the sewer. I’m budgeting $200/lot in year 2 for the submetering. This should eliminate almost all of the $6k water/sewer bill and provide a 1 year payback3) Raise rents. 14 of the occupied lots are at $200-250 and should go to $275 based on rental/home prices in the area. Four lots are at $325-$400, so the lower rent lots may be able to go higher. I think the tenants have been in place for a long time, probably don’t have a mortgage, and have not had a rent bump in 7 years (allegedly), so a 10% increase seems fair.4) Parcel out the SFR and sell it off cheap ~$80k ASAP RISKS1) Unfinanceable park (low occ, too small). I think this is a real issue. Seller will not carry and a broker told me the available bank financing is 50% LTV “as dirt”…which turns out to be about 50% LTV on purchase price depending on which land comps the appraiser uses.2) I’m not thrilled about renting a SFR duplex and two duplex trailers. Having 4 vacant park owned homes is also a problem. I have no idea how much those will cost to get into sale condition, but I almost think the seller should pay me to take them if they need any significant work at all.3) R&M stays high with the two duplex trailers and SFR even after selling the other POHs. I have no exit plan for the two duplex trailers.4) Water/sewer cannot be submetered.5) Cannot sell off the SFR and end up with a long-term sticks and bricks rental from the 1930’s…R&M nightmare. NEXT STEPSSeller would like to trade at $550,000 which is an 8% cap.
My next step is to offer $442,500, a straight 10% cap on in-place NOI. I wouldn’t mind taking a lower going-in cap if I can reduce the expenses in the first 18 months and sell off the SFR to return some capital. But, if I cant get more than 50% LTV, the cash on cash is dismal which means reducing expenses and selling that SFR become “must do’s” not “nice to haves”.Thanks,Brad
Given the size of this deal and the difficulty in finding bank financing, it’s just not an 8% cap. 12% cap is more reasonable, so your value is:21x$271x70=$398k 1 SFH @ $80k = $80k=$478kSo if you can get it at $442k, great!Based on your description and my gut, I’d bet those POHs have nearly $0 value. Put them on RTO agreements or outright give them away. But as regards the two duplex POHs, you’ll probably need to ‘un-duplex’ them and return them to their original floorpan and then sell them. This will involve tearing down a dividing wall and perhaps pulling-out an extra kitchen. This would be a lower priority. Basically the next time they come vacant, do the work then, and sell them.We recently purchased a similar park. The ‘hitch’ with the SFH on our park was that the new government regulations required 60’-wide frontage onto the main street that ran infront of the park. The mobile homes were in the way. So our home is ‘stranded’ in the middle of the park. If your SFH is right up front facing onto the street, you’ll likely be able to parcel it off. But talk to your city; there could be a myriad of other silly regulations that will force you to keep it as a rental and thus reduce homeownership in this country. (OK, I’m off my soapbox now!) Maybe get a Section 8 tenant in the house. In the West, S8 tends to have good-quality tenants, but ask other landlords in the area what their experience has been.Definitely bill for water. Just don’t make a profit on it, or you will almost certainly subject yourself to all the regulations of being a ‘utility.’ Usage will drop by about 1/3rd. It’s what’s right for the environment and what’s right for your wallet. Nice!Your management expense is a little high, but not cripplingly so. Should be $10/lot/month (e.g. $210/mo.) plus free lot rent (not free house rent - just lot). Probably add-in another $10/month for the SFH.Ask the seller to carry-back paper if you can’t find a bank to go more than 50% LTV. Take the bank money and make the seller carry-back 30% and you put up 20%.Good luck, and let us know how your negotiations go,-jl-
Hi Jefferson,Thank you for the feedback. I’ll try and lower the management expense if I end up buying. I tried to contact a couple property managers locally to vet that expense, but couldn’t connect this week. Completely with you on water usage. Out west where I live, the water is precious. On that note, apparently the city will provide grey water for $15 flat a month for landscaping. Pretty cool.Negotiations/underwriting continues, and as always, the more you dig the more you find. So now there are 8 POHs (all but 2 are pre-HUD): a 1990 park model, a '71 Fleetwood, '70 Detroit, '72 Acae A17, '77 Skyline, an unidentified '72 something, and two 1965 Longmark 12x65 duplexes…which sound like they were purpose built duplexes. The rentals are the thorn for me on this deal. The house I can sell, the POHs I can sell, but the duplexes…not sure. The rent spread on the rented (non-duplex) POHs is only $75-$150 over the lot rent which seems a little thin for all the R&M that goes along with them, but maybe that is normal. Just another good reason to plan on selling them. Also learned there are 2 RVs, one owned by the manager who is getting free lot rent, and another paying full lot rent. I’ll probably write the offer including the RV paying rent, but if it is not hooked up permanently I’m not paying for it. I don’t know anything about RVs, but if the cash flow can drive away, I’m out.Yes, this house should be fine given the frontage. I don’t want to offer the full price I can sell it for though since I’ll have to take the time and pay an attorney to get it parceled out, plus take the chance I can never sell it.Anyway, you guys provide a lot of good resources here. I talked to some debt and insurance folks you recommend here and they were solid professionals.I’ll post up where this thing ends up. Thank you for taking the time to comment.Thanks,Brad