Looking at a potential deal

I’m looking at a park for sale in Florida my home state. The park has 20 units and an apartment. Average rent is about $301 per month including the apartment and includes water and sewer and trash removal. The property has city water and sewer but is not individually metered. So, I calculated the value as follows:
21 units x $301 x 12 x .60 x 10 = $455,112. The list price is $510,000 but after talking to the broker a couple of times, I think I could get it for around $470,000 or maybe less. This is an older park (1970’s) with older single wide homes that is 100% leased with long time resident manager, no park owned homes. My big concern is the exit strategy. I would keep the park for several years as the cash on cash return after expenses and mortgage is just over 11% and reflects 9.8% cap rate. I am wondering that after several years these older homes would be in poor condition and this might cause a problem trying to sell the park for a decent profit. Am I being too worried or do I have a legitimate concern about the older homes even though they are tenant owned? Thanks for your comments.

If the older homes are tenant-owned (and have been for a long time - e.g. the seller didn’t just execute a bunch of RTO agreements in the last 6 months to ‘pretty up’ the park and sell it to you), then I wouldn’t worry about their age.

Your valuation sounds reasonable. Submitter the water, improve the profitability, and you should create equity that will outweigh the negative of the already-old mobile homes becoming ‘already-older’ if/when you sell.

My 2 cents worth,

-jl-


With any park in South Florida, make your offer subject to “approved finance and insurance plans.” Often times, longer term owners in South Florida show only general liability insurance costs on their financial statements, not wanting to show or pay for insurance on the buildings and income of the park. As you may well want these items insured, if the insurance costs aren’t listed properly, you’ll have a higher insurance premium/lower ROI than you expected. Feel free to send me a copy of the owners current insurance plan /policy and I’ll be glad to tell if you what it covers / doesn’t cover.

Kurt

Thank you very much for your time and input