Is this park a good buy for a first timer?

I am in California, so as Frank says, starting out in the big leagues. Parks sell for 40k per space and up. I am interested in a small park… 15 spaces, all filled with tenant owned homes, city sewer and water, tenants pay all their own utilities. Rents are $325/m. City paved street. One stick built house rented to mgr for $800/m, he is not paid a salary as this is reduced rent. So gross revenues of 68,100 annually.
Expenses: tax 7150
Ins 1600
Grounds 1200
Misc. 400

Total exp. 10,350

NOI. 57,750

Asking price of $650,000

Reason for sale is health issues. Being marketed by a local RE agent. It’s in a depressed county economically, but we have a vacation home there so I am familiar with the area. The homes look like they have been there a long time in that they have plants, porches etc. a pretty nice looking park for the area. Right across the road from a lovely lake.
So I am thinking of offering 575,000 for a 10 cap from the get go. What do you all think? Sue

A 10 cap is good for a lot of investments I think. The huge advantage to buying parks is the ability to increase that 10 cap to a 16-20 cap through filling vacant lots and expense reduction.

That being said, lenders like to see experience in the industry so you could at least accomplish that while still having a positive investment.

Are those rents at market?

If you’re happy with it then maybe it’s a good find.

15 x 12 x 325 x.7 x 10 = about 409k

How much is the house worth and can you separate it so you can sell it?

You need to add a few things to expenses: management (even if you do it yourself), some allowance for vacancies, repairs and maintenance (that house will have quite a bit of repair and maintenance), legal/collections, accounting.

Rebuild your own P&L and see where you are at.

Park has all the things that are recommended for first timer, city utilities, no park owned homes…

Its all about price though. Even 570,000 will not be a 10 cap once you rebuilt a true P&L for the park.

Phillip is exactly right here. The expenses you were given do not reflect what is typical in a park. You need to start off by getting the 2014 & 2015 tax return. If this is listed with a broker, then shame on them for not having done this yet. This is one of their core responsibilities so put them to work on doing their job. What you’ll likely find is that once you look at the tax returns, the gross will be much lower than a perfect $68,100 and the expenses will be much higher. Once you have their actual numbers, then you should start to adjust the stated expenses against what you anticipate the expenses will be using your business model. For instance, is there an expectation that the taxes will stay the same or will the assessed value adjust based on your purchase price? Are the grounds being properly maintained for $1,200 per year? etc.

Thank you all for the input. I thought the expenses were awfully abbreviated. So before making an offer I can ask for and expect to see the seller’s tax returns? I have gotten nothing in writing, just verbal info on the phone from the broker. She is a lakefront residential broker, not a commercial broker. Sue

The overhead on a small park is going to be higher than expense ratio of 30% --> park is going to net a lot lower than $41k per year (for a 10% cap price of $409k).

$40+k per paying space is just not going to work out to a 10% cap rate. Maybe 5% cap rate. If you’re paying 5% on a mortgage then you’re right in the ballpark to earn 5% on your capital investment. Maybe that’s a decent return for the amount of aggro and risk this investment entails. If you can get a better mortgage you can leverage your return – or fill lots, or something else to add value. At least you’ll (presumably) keep pace with inflation, so that return may be a heck of a lot better (less risky more rewarding) place to stick your money than the stock market or the bank account.

The real question is, what do you think of the risk (possible downside) and the (expected) return/reward? (and possible upside?)


She might be a residential broker but she stepped into the shoes of a commercial broker. Her inexperience is not an excuse for not getting the financials. Tax returns and a rent roll are the basics of what she needs to be getting from the seller. You’ll need these things to properly value it and get a loan. If you need to convince her of this, just call up a local bank and have them send you a list of items they will need to underwrite the loan. Present this list to the broker and let her know that it’s a waste of time to make an offer until you are certain the property will actually qualify for a loan. I would also point out that the stated revenue and expenses do not match up with what is generally expected in the operation of a park so a tax return would paint a more clear picture of what is going on.

Well put, thanks for the ammunition.