Looking at property in Central California on a river. Has been there over 20 years. Long hx of 100% occupied and has waiting list. 13 /13 lots occupied and tenants own the MH. Rent has been $450-500 for over past 5 years. New sewer system and electrical outlets. So, initially looks fairly interesting. About $77,00 rent; $15,000 expenses; net $52,000.
From Frank’s figures= (13)($475 avg. rent)(12)(25% expenses)(10 (desired cap rate)= $204,000.
They want $550K.
Where’s a good place to start bid? This MHP–even at $500K–seem attractive w stability, etc…
Ideas?
A 25% expense load strikes me as low. The best we’ve ever been able to achieve was around 29.5% - just for one year with unusually low unexpected expenses. 30% is a ‘best case’ stable expense ratio. 35% is certainly not unheard of.
Also, small parks like this do not trade at the premiums large parks do. So 10% sounds low for an out-of-the-way small park. 12% is more reasonable.
Reasonable valuation ratios would be:
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70x the monthly lot rent if the tenants pay all utilities, or
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60x the monthly lot rent if the park pays all utilities and re-bills tenants
So I think a more reasonable valuation assuming the former is 13x$475x70=$432,000.
Then again, some people will pay anything for the ‘joy’ of owning property in California and the privilege of paying America’s highest State income taxes and complying with the regulations of the nation’s most busines-unfriendly State government. So who knows, maybe $550,000 is the right number. :S
For my money, I’d rather own properties in other more affordable states and receive better cash flow.
Let us know how it turns out,
-jl-
I will say, in California seldom do investment properties sell at a 10 cap. I strongly recommend you spend some time researching solds in that area in all of the investment real estate classes, and then compare the cap rates to the midwest average.
Most of us buy in “10” cap markets- What I buy in Nebraska or Texas that is a 10 CAP, might be a 7 or an 8 in California.
There are local market trends you must account for, and California is clearly one of the places you need to know the local market to play ball…
just my 2 cents- keep the change
What kind of “sewer plant” and what do you mean by “new electric outlets” – do you mean master-metered electrical?
He just sold property yesterday for $530K with seller financing.
Thanks for the suggestions.
JH
Jim,
Did you happen to look at the Trust Deed that was recorded? I would be interested with what $$ the seller is taking back.
Mike