Is this a Good Deal / Bad Deal?

I am looking for your opinions and comments on this deal.

The park sits on 70 acres. Half of this makes up the park and the other half is occupied by a single family home that could be sold separately.

All of the land is zoned for 20 DU/acre.

There are newer home developments neighboring this park with homes on small lots selling for $125,000.

The park is currently on a well and septic tanks but could be connected to public sewer and water (1300 ft away)

It has 75 lots ¼ acre each. Each lot has a power pole( many have been vandalized) and septic tank

28 lots have trailers but only 12 are rented. (The vacant trailers are in very rough shape, most have been stripped of wiring)

The 12 are rented at $400/month. For a total monthly income of $5000/month

Market lot rent is $235-250/month.

The expenses for the park are around $4000/month including $850/month for well monitoring

Most of the expenses are fixed.

The park has approximately 1 mile of roads that need to be repaved and ¼ mile of new road that needs to be paved over the dirt road there now.

The park has been privately offered to me at $500,000 with $100,000 down 7 year balloon. 5% interest non-recourse seller carry. (tax assessed at 725k)

My plan is to buy the park and immediately redo the roads, make the landscaping look nice, and start rehabbing/ bringing in trailers to fill the park.

I will sell all of the trailers RTO.

I ran a test ad for a rent to own trailer and got 20 calls within 24 hours.

I have about 300k to work with and I made the rough assumption that I could fill 4 lots/quarter and each empty lot will initially cost me 10k to fill(will

be paid back in time from the rto payments).

Under that assumption, I will be able to fill all of the lots in 4 years and have a park with a NOI of around 150k and a value around 1.5 Million.

Based on my test ad and other research, I think I can sell these trailers RTO as fast as I can get them ready.

What do you think about this deal?

Am I crazy to think I can make $1,000,000 on this deal in 4 years?

Current value: 28 (I’m assuming you can put all these trailers back into service fast) x $250 x 12 x .6 x 10 = $504,000. Then subtract the cost to fix the 16 houses (maybe $100,000). Then subtract the cost to convert to city water and sewer (est. $200,000?) So the park as it sits is maybe worth $200,000 (subject to water/sewer bids). If you fill the park to 75 lots occupied, the value is 75 x $250 x 12 x .6 x 10 = $1,350,000. But you’ll have to spend about 47 x $30,000 = $1.4 million in homes to fill those vacant lots.

So the answer is that, yes, you could theoretically make $850,000 with this deal, but it will cost you $1.4 million in homes to get there, and you will then have to sell the homes and get all the home money back.

This is a very difficult deal, in which you will have to contend with a complete city water and sewer conversion and then buying and selling 47 homes. I would think there are other deals out there which have a fraction of the risk and much more profitability.

As an example, if you bought a decent 60 lot park for $800,000 for $200,000 down and then raise the rents and cut costs worth $50 per lot per month, then you’d increase the value by $360,000, and have very little risk along the way. I’d rather do a deal like that twice to make the same money you’d be making with that one, very risky deal.

Frank,

Thanks for the quick response.

I agree that I should pursue a less risky deal (especially for my first one).

I still have a couple questions about this deal just for the sake of education.

1.If the well and septic are in good working order, why pay all that money to convert to public sewer/water?

2.I am under the impression that I could buy used trailers for ~ 5k and spend another ~ 5k to have them moved and set up in my park for a total of roughly 10k. I noticed you estimated 30k per trailer. I assume you are talking about new trailers. Why spend all of the extra money for new trailers when my goal is to fill lots as quickly and cheaply as possible? Do you think 10k for used trailers is accurate?

You don’t have to convert over well and septic, but you need to be ready to if required. Many a park owner has been crushed by the cost to make the conversion, which they did not budget for. You can have a professional give you an opinion of the status of the well and septic, but they can’t know everything and systems that work great today can fail tomorrow. In some areas, you are not allowed to replace septic tanks or leach fields without bringing the entire system up to the modern standard which, in some areas, allows only one septic per acre – in that case, city sewer would be a necessity.

On the homes, you cannot find homes that are in move-in ready condition for $5,000 very often. Normally, you will be buying repos that cost $10,000 to $15,000, and then need about $5,000 of work, so the total would be $20,000 to $25,000 including the move, set, skirt, stairs, etc. New homes might cost you $35,000, based on how far they have to go and who you buy from. A $5,000 home will really cost about $15,000 when completed, on average. So I used $30,000 just to give your numbers some cushion based on what type of home you buy – but they are definitely conservative. I’d rather over-budget than under-budget, especially when using that calculation for your potential return on investment.

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