Help with park evaluation

Want to get the pro’s opinions on a park in a city of 300,000 people.Park is in a decent part of town and looks well kept.Here are the stats: lots 75 occupied 67 @ lot rent $400 city water/sewerseller financingasking price $2.8 milliondown payment 400k15 yr carry at 6%Homes are 70’s, 80’s operating expenses by seller listed at 15% seems low.going with 30% based on info gathered on this forumas far as upside… park has some water meters already hooked up but tenants are not billed for water.Not sure how much lot rent can be increased, still researching that but I see lots down the road asking more but are nicer.This would be a first park,  I make a living with a few rentals in town where I live.Let me know if my numbers make sense.67x400x12x.7 =  $225,120 net$225,120 / $2.8mil = 8% cap rateI know allot of you try for a 10% cap. thanks for the help!

67 x $400 x 12 x .7 x 10 = $2,251,000 is the top value for the lots.No way you can buy a park like this at a 8% cap rate and make any money (unless it’s in CA where cap rates run as low as 6%). The park will barely cover its mortgage and you’ll never find another buyer who will buy at an 8% cap rate – so you’ll be upside down around $600,000 on day one, The only way this deal could work is if the lots were incredibly under market, and I’m betting $400 is at the top, rather than the bottom of the market.The seller is going to have to get more rational. We had someone bring us a deal the other day that was worth $500,000 at a 10% cap rate and they wanted $3 million. Seller’s don’t always seem to realize that this is an income property business, and not fine art speculation. I would say that this deal will never sell, except that, since the seller is carrying the paper, their will not be the scrutiny of an appraiser and banker, and there are people out there who don’t read this forum, or go to Boot Camp, or have any idea what they’re doing, and they will jump into it and get crushed.Of course, you can then buy it from the seller at the new, lower price, after that buyer defaults.

Frank thanks for real deal answer, I have been following this forum and appreciate your experience and candor.10% is what I’m looking for on this deal… I’ll let him know that $2.2mil is top dollar.

No, what I meant was that the amount you paid is $600,000 more than what you can sell it for the day after your bought it. Kind of like when you buy a new car for $40,000, and the second you leave the dealer’s lot it becomes a used car as is worth $30,000. The trick is to buy a used car that is worth $30,000 for $20,000.One more note, what you want, as much as a 10% cap rate, is a 5 point spread between the cap rate and the financing rate on the loan. If you can buy that deal at a 10% cap rate, and he finances at 5%, then you’ll have a cash-on-cash of 20% on your down payment, and that’s the real goal of most everyone.

Joe,If tenants are not paying for water, the owner is.  Therefore, you cannot count on only 30% expenses; it will be closer to 40% (or 30% after you deduct the water and sewer expenses from the income).Howard

Howard,Glad you pointed that out. I was on the phone when I typed that, and thought it said tenants pay water. Howard is correct – the expense ratio on this park is going to be more like 40%, and that means the price just dropped again. The new price is roughly $1,929,000. 

Ok thanks for clarifying.

Frank and others,  You inferred but I’ll spell it out what ah-ha moment I had while analyzing a seller carry deal.  The seller HAS to leave 30% NOI improvements on the table else the buyer will never be able to REFI with bank money out of the seller note without bringing cash to the table.Think about this:  seller offers 80%, you put in 20%.  But you bought a fully valued park.  You don’;t have a way to quickly bump NOI up another 15% or more so you get 12 months of run time for a bank to look back 12 months and give you a loan for 70% LTV.  You’d be trapped and risk having to give back the park at the end of the seller balloon.Might someone agree or refine my observation re needing to buy at under value, make improvements prior to REFI (with appraisal)?

You are exactly right.