This is not the type of property that I focus on and I hope others may just n and help out with the math etc. but what I wanted to point out was a couple of things that go through my mind when looking at new investment properties.
My main focus is cash flow, then the ability to create an increase in value.
I have seen to many folks buy properties that have the potential for value to be increased but they about go under in the meantime because there is no current cash flow.
Now there are times when you may consider a property that is break even or some might consider negative if but only if they have a quick remedy and ability to employ it to get that property cash flowing in a positive manner. Once they have it cash flowing positive, they can then work to increase the value and cash flow.
For me the focus has to be remaining financial solvent at the end of each month.
If you have the money and ability to develop additional lots then the extra land holds some (but not yet great) value. This will cost a lot of time and money so you can’t pay too much for it in my opinion.
The cost that is most often left out is the cost of bringing in homes and getting them to market (either to sell or rent).
Where is that money going to come from? How will it be secured (if financed), how long will purchase, move set up, and sale/rent take? Will that income offset the payments necessary to finance the development and home?
I do not believe in the “build it and they will come” scenario. Too many folks rely on buyers and dealers to fill their lots but buyers and dealers are extras in my opinion because they work on their own time frame, not ours.
Let’s use round numbers for an example.
Even after the development costs are forked out, let’s say you have to buy, move, set up and touch up (or fix up) 27 mobile homes for these lots. Now I buy older mobile homes that need a lot of work and typically the whole move, set up and rehab runs me $10k per singlewide with my labor being free. Few investors will do this for new parks and to be honest it would take me forever to do that many homes by myself.
You would likely want newer homes. Let’s say that after purchase, move, setup, touch up, holding costs etc. that each home runs somewhere between $15k to $20. That means that you would have to come up with an additional $400k to $550,000 in cash.
That’s essentially another half million in cash you will need to come up with in addition to any development costs which tend to add up very quickly and that is before the city, county, town, etc. gets their fingers into your pie. Trust me, just because it was once a certain number of unit park does not mean it may remain so today (don’t ask me how I learned that little lesson).
Again, I don’t buy these type of properties at the moment so my advice and opinions have little, specific value. I post only to point out some mistakes I have seen and made.