29 lot, one vacant ,27POH home grossing around $270000,one lot rent $350.00 and Manager home no rent , total expenses $80000 which is about 30% of gross sales ,well and septic. More lots can be developed in future. I value as
$350x28x12x0.7=$1176000 at 10% cap plus value of POH home and manager home =$1325000
I have not seen the park ,like to know Do I need to look at park, spend money and time before putting offer?
please let me know if I am wrong.
28 x $350 x 12 x .6 x 10 = $705,600 at a 10% cap rate, NOT $1,176,000. I don’t know the age of the homes, but if they’re 1980s or so, they might be worth $5,000 each, which is $135,000. That would put the total value at maybe $840,000, NOT $1,325,000.
But an even bigger question is if you’d really want to buy a park that small that’s on well and septic, instead of city water and sewer. And even if you did, I’d demand a much higher cap rate of at least probably 12%+ (and only then after making sure the well and septic is in fantastic condition and fully legal to replace and maintain). That would drop the value even lower – more like $500,000 plus homes.
You don’t need to drive out and look at the park prior to making an offer. You can look at the park on Google earth and streetview, and that’s 90% of how it would look if you go there. You can also study the market at www.Bestplaces.net.
In addition to the caveats from Frank, you have to determine whether the lot rents are realistic. Since the homes are all park owned, the seller allocates the monthly rents as he wishes and he can overstate the lot rent and have a small home rent distorting your income.
In general, the homes do no better than break even with the costs of maintenance, turnover, taxes, etc. That is with a reasonable amount allocated to the home rent. If the home rents are low, you will lose considerable money on that part of the operation. Your home costs could easily be $250/month per home. Are the total rents at least $600?
Unless you’re very, very experienced and knowledgeable, stay far far away from well and septic. Both can be exceedingly expensive nightmares. My park has city services, so I don’t have direct experience, but I’ve read posts about septic costing tens of thousands of dollars to service or repair. And that the EPA is cracking down on septic systems, and changing the requirements for them. And that a significant education is required to run them successfully. As for a well, my brother owned a motel with a well, and I watched him spend thousands hunting for water which he never found.
Caveat emptor…let the buyer beware…
The greater the risk the greater the reward. If you can purchase at Franks number of 500,000 plus homes you should do fine even with sewer and well assuming everything is in good condition.
The 27 POHs will be a full time job to maintain and far more of a headache than the investment is worth. There will be no return on the rent of the homes and for that reason not worth investing unless you plan on off loading the homes to buyers.
thanks everyone who have guided me through their knowledge. This is the way professional people look at the returns , deal…etc.
Then asking price is getting closed to half that I am not used to offer.
Any way I have to change my offer to offset the maintenance and unknown cost related to sewer and well.