Looking to see if this is a good deal

The purchase price is 510,000 38 pads but only 35 have a septic tank. 28 park owned homes and two lot rents. One is at 250 and the other is 300. Water is paid by the park and billed back to the tenants and generates an extra 350-400 per month on water. Mobile home rents for 440 for a single wide and 520 for a double wide. Tenants pay for own power. It is on 35 acres. 3-4 of the lots are in the 100 year flood plain. The average mobile home rent is about 475. I was trying to figure out a way to get the tenets to pay 2-3k for the mobile homes and just charge lot rent of either 275 or 300. Taxes are 5,000 street lights are 1500 per year and lawn maintance is 5000 per year. It seems this deal is almost too good. Park is about 80% occupied. Last month sellers collected $9320. So multiply by 12 =111840x.5 for expenses which is prob a little high. That would give me 55920 So about 560,000. That does not include the extra made off of the water. But if I can get the mobile homes out of my name. and just collect lot rent on 28 lots at 275 per lot. That would give me an income of 92,400 per year with minimul expenses of say .75 = 69300 So property would then be worth 693,000. Is my math right on all of this. Is this a good deal?

Based on all of the parks I have looked at it would be very difficult to operate at 25% expenses. The only parks I have seen do that are those with municipal utilities paid by tenants, public roads maintained and plowed by the municipality, and basically no park owned homes. Additional question: is there 35 individual septic systems?

yes there are 35 septic systems.

Are the tenants responsible for the cost of maintaining their own septic tanks.

The standard expense ratio for a park of this type is 40%. If the tenants paid their own water and sewer it would be 30%. But they will never pay their sewer as it’s your cost with those septics, so you’ll never beat 40% even if you bill the water back. The only parks in the U.S. that can hit 25% are those that have city-owned streets, very high lot rents and 100% pass-through on utilities.

On this park, 30 x $250 x 12 x .6 x 10 = $540,000, so the price is around a 10% cap rate on lot income, plus the value of the homes. The price is not a big problem here.

The bigger decision is going to be if the septic is OK, or if it’s going to need huge capital expense and if the law even allows you to fix them. The second problem is what condition the park-owned homes are in, and how much capital they may require. You will also need to get a firm handle on the flood plain issue.

One final issue, in most states, you are not able to make a profit on the water billing, other than a small administrative cost. You’re scaring me with the $400 per month on water profit center – I question if that’s even legal. You will probably have to discontinue that after closing, if you bought the park.

The homes are in fair to poor condition. There are 28 park owned homes. I think I can still neg a little and get this down to the mid to low 400’s. Whats the best way to get the mobile homes out of my name and into the tenants name. Do you ever just give them the mobile home?

Flood plain with septic is a very scary scenario. Personally, that is one thing I wouldn’t touch. Just to save you from doing a ton of work on this one, you should probably contact the health dept and have a discussion about those septics. You may also want to find out if you can replace them if you need to. Getting a bad answer on either one of those issues is pretty much a deal killer at almost any price in my book.

For the homes, you need to sell these. Do not give them away. The tenant has to feel like they have skin in the game. The rent credit is good and pushing a ton of ads towards cash sales works well too. We set our pricing in an effort to get a cash sale. For example, a 2br 1970’s home may be marketed like this: $2,000 cash or $4,000 under rent credit.

Handyman specials are also good for homes that are at least habitable. Big key to the handyman is to fix the roof leaks and make the home look decent on the outside. Leave the inside work for the tenant.

Keep in mind when unloading homes the lower the value of the home the lower the value of the tenant.
Take the time to get to know all your tenants and screen thoroughly to evict the undesirables before offering homes for sale.

Charles makes an excellent point. If the septic systems are in floodplain, they will likely need to be mounded when replaced, which may require lift pumps and will be very expensive.