My father and I are farmers in the central Ohio Market. I also work full time in a steel mill. I am a 27 yr old college graduate looking to find a way to work for myself and eventually farm full time and invest full time. We have the opportunity to purchase a 55 and older park that is a fixer upper. The park itself has 38 lots on it of which 20 are occupied. Lot rent is 280 a month and there are currently no park owned homes. The bank is willing to take a bath on it as they are into it for well over $200k and are wiling to sell at around $190k. We are able to get financing from our Ag bank using 50 acres of farm land as collateral at a %5.5 fixed rate for 30 years with a patronage refund of %1 returned to us at the end of the loan. The homes that are here now are new style homes and well maintained. We know the park needs a new well costing somewhere in the neighborhood of $25k. (Still checking on the availability of city water. The park also needs new roads in the next 5 years, The sewer system is in pretty decent shape to our knowledge. We have around $125k in cash to work with after putting limited cash down initially.
For a new guy… tips, pointers, any red flags? Is it too good to be true?
I’ll also add that over the last 35 years my father and I have owned a combined 35 different rental properties and have built a smaller but high end housing development so dealing with renters and installing infrastructure is nothing new to us. We currently own all of the equipment to do most of the work for any new construction or repairs ourselves. we are looking to use sweat equity as our main source of gains here…
Why does it need a new well? Supply issues or contamination? You better due some extra thorough due diligence on the local water table. I would want to talk to multiple local well drillers and possibly a geologist. You could be out alot more than $25,000. You are basicly gambling your down payment, and your farm on a well. Thats a lot of risk.
The bigger question is what type of sewer system do you have?
The biggest question is will 38 (20 lots currently occupied) lots justify having your own water and sewer? Figure out the Capex cost of your water and sewer plant and it will supprise you how much it will cost you per lot.
I like private utilities but you have to have scale to spread out the capex, operating cost, and risk to make it pencil. Who will buy it when you get ready to sell.
The park park would probably be worthy 400,000 (20280120.60.1) if on city water and sewer. But now it might be worth nothing… if you dont have water.
You could make your offer contingent on a sucessful new well being drilled either from your money or the banks.
Water and sewer are an issue obviously. However at $190,000 it is viable but I would want to know why there are 18 empty lots and can you fill them.
I personally prefer seniors communities (55 +) as they are a much more stable resident base and much simpler to manage but does this area support that type of community. Possibly not based on the vacancy rate.
If it did I would be looking at filling the lots upgrading the entire community with paved roads, street lighting, manicured landscaping etc. and raising the rents accordingly.
In theory if you could buy for $190, invest another $200 upgrading, fill lots and raise rents you would be doing very well and have a saleable investment.
We basically owned parks to continue our farm dreams. You being a person willing to work 24/7 and having many skills most park owners never experienced I challenge you to be very careful about the low occupancy and why!! Depending on water and sewer problems which can be a forever nightmare since you will probably experience high nitrates in the wells since you are in a corn growing area and nitrates are difficult to remove and EPA is looking since it causes health problems. The park probably is a better value than buying the neighbor’s 80 acres but we prefer to buying fully functioning parks with city utilities especially for first time buyers. You being a farmer have the skills to make a good decision after ALL the facts and information are on the table.
I would encourage you to consider passing on this park and purchase a nicer park. With the cash you have, you have lots of options. You don’t need to buy a park with private utilities, bad new roads, and half empty.
I’ve been in the business for 13 years, and I wouldn’t touch a private sewer system. I most likely won’t buy any more parks with wells again either.
Here are some random costs I see you having to get this park up and running.
18 lots empty X $20,000 per lot to fill =$360,000 (that’s with used homes!)
New Well= $25,000 (this seems high to me, its been a while since I installed one)
New roads= tens of thousands depending on size.
Sewer expenses= Unknown potentially hundreds of thousands of dollars at some point
In addition to shelling out all this money, you’ll actually have to do all this work and deal with the state regarding your well and septic. Finding 18 homes and organizing their purchase, transport, ect, is a lot of work! Especially for a less experience investor.
It sounds like you and your father have some equity in your farming business which is neat. If your going to “bet the farm on it” why not put up the farm as equity on a nicer more stable park?
If you do move forward on this park, you may see how low the bank will go on price, there might not be many buyers lining up on this.
Best wishes.
If you see parks with private systems you would omit please be so kind to pass than on since we have went from city water on one park to wells and increased the parks NOI and actually sold it to big time investors who has no qualms. The city had us at $47 per unit just for a connection and our monthly bill went from over $5,000 per month to less than $200 per month including chemicals and electricity or just a little over $1.00 per home. We followed all DEQ regulators and we ended up with over a 4 times return on costs. So please mobilehomepark please give us a chance on those kind of parks since we are SOMETIMES comfortable with private utilities–remember sometimes!!!