MHP Value (Hypothetical)

First time poster looking for some help with this example (questions at the bottom).  I know it’s a lot, but any feedback would be greatly appreciated.  Hypothetical Park Eval:MHP Price - $450,000

Size – 4.2 acres# of lots – 30

Lot rent - $175Occupancy – 90% (27 of 30)

Year Built – 1985Water and Sewar – City (Water paid by tenants)

Park Owned Homes – 8 @$350/mo avg (6 single/2 double wides)So running my made up numbers, I get….

Gross Income – $73,500

Operating Expenses - $32,500 (44%…Includes onsite manager)Net Operating Income – $40,000

Other Info – Park rents are on par with other similar parks in area.  So my questions…

What details am I missing?How would you value this park off of the given numbers? How did you come up with the evaluation, and what do numbers in
equation mean?
How much of a down payment would I need for a bank loan?How are normal MHP loans worked(length,rate)?What would a bank’s criteria be for approving me for the loan?Should I go another route for loan? 
With who?
If I don’t have enough for down payment, are there other ways of
getting dp and still making deal worthwhile?

Also, if there are other
questions that I should be asking feel free to include.  Thanks.

First, you need to define what your desired return is.  That is where YOUR value would come from on an investment property.  For me, I would value a 30 space park like this in the $250,000 to $300,000 range.  To waste our time on something this small (with no upside), we would need to basically steal it.  Most people on this forum use a 60/70 multiplier on lot rent to arrive at a ballpark 12% CAP.  However, the second part of this equation is the upside potential.  This hypothetical park is at market and the utilities are sub-metered.  What you really want is to add value and double the park’s value as quickly as possible.  Hence, the previous paragraph where the only potential upside is stealing it.  Hypothetically, if you did buy it for $450,000, that would represent 8.9% CAP.  Because you have no upside, you would need to wait around until lot rents were $350 to achieve that goal (and then be able to sell it for an 8.9% CAP)…you might be waiting a while to achieve the second part of the equation.  For a bank loan, you should plan for 30% down.  You can get small banks to go as low as 20%, but you will need to spend a lot of time finding them and working the relationship on a deal like this.  Expect a 20 or 25 year ammo with a 5, 7, or 10 year balloon.  *I did talk to a guy a few months ago who had a bank do 10% down, so anything is possible with a local bank.  A bank that approves you will be wanting recourse.  Meaning, your credit needs to be solid and you will need a good personal financial statement.  A hard money lender / investor can loan you the money for the down-payment.  The seller can (and should) finance the debt.  If you don’t have the money for the down on something like this then shoot for a bigger park.  If you can get a solid 10-12% CAP (with some upside) deal together on a larger park, you are more likely to attract an investor or partner.  Again, there’s not enough juice in this thing to make it that appealing to too many people.The take away, define your investing goals before you begin evaluating potential deals.  Then, spend your time on only the parks that can achieve the results you defined.  

@charlesd…Thanks so much for taking the time to respond.  I’ve read a few books on the subject, but posts like yours are just as helpful.  Being that I am a begginner in the MHP investing world, do you have any suggestions on what steps I should take to get started.    My thoughts were to find smaller deals with potential, build the potential, and then sell for profit to put into bigger and more profitable deals.  Eventually building a nice portfolio of parks.The main concerns and questions I have:- What is the first step I should take to get started?- How do I find the funds for a down payment of that size?  You mentioned hard money lenders, but how realistic is that for a guy who has never actually done a deal before.  Personal bank loan?  I have good to above average credit and an average to a little above average income.- With all the big money investors out there, is it realistic for a beginner like myself to find deals that are worth jumping in to?  Am I better off saving, eliminating my own debt (which I’ve been focusing on, and the reason I haven’t started), and then jumping in?  I’m ready to get started in some form or fashion though.I know it seems like I’m being a little negative, but I’m just trying to be smart and realistic about getting started.  I’m not the get rich quick type at all, but I also don’t want to waste my life away wishing I would have done something.  Thanks again for taking the time to respond earlier. 

It is my personal opinion that you should make your first deal a partnership deal with an experienced investor.  If you go out and find the deal, you shouldn’t have any trouble finding an experienced partner.  The reason I say this is that I didn’t do this on my first few investment properties.  Therefore, every lesson I learned, I learned the hard way.  Thankfully, all of my early properties were SFHs and duplexes, but they were still costly lessons at times.  Your idea is good in theory, but there are tons of issues that pop-up when running a multi-family property and it’s always nice to have an experienced partner (mentor) to bounce solutions off of.  Also, it’s hard to get financing of any kind when you aren’t experienced.  Leverage your partner’s experience to get in your first deal and then you will have the track record to obtain financing on your own in the future.As for financing, I would start having discussions with you banker now.  Get an idea of what actions you will need to take so that you aren’t jumping through too many hoops when you have a deal lined up.  Bankers should be a part of you real estate investing team, and it’s never too early to start building those relationships.