Looking at a park not in an MSA, but there is a Walmart superstore (exterior building is measured at 101,000 SF). The park has city streets, water and sewer. The lot rent is only $100. 60% ore POH. There is more than 55 lots. Median homes $77K and median income is 41K. 2 BR apartments are $636/mo. The asking price reflects the low rent.
Does the Walmart in town trump the lack of an MSA?
There has to be some population, what is it?
Are there other parks in town? If so what are their lot rents?
Walmart is not in the housing business, and their existence does not fix issues with the housing market. While a Walmart is a great sign, I am very concerned about the stats of a $100 rent. Is that the market rent? If so, I’d punt. It’s impossible to make money with $100 rents.
What is the metro population?
Lot rent for a community one town over is $175, which includes water and sewer. The town is 4200. It actually shrank from 1990 to 2000 and then grew. I am thinking perhaps it is better to be conservative and look for a bigger metro area.
Having 60% POHs I would pass.
So the metro area is 4,200? That’s too small unless it has special characteristics (like super-high housing prices and a huge lack of affordable housing). My problem with the deal – even more than the population which is not good – is the lot rent. You can’t really use a comp that is a town away. Are there any other parks in this town? $100 per month lot rent is just a deal breaker unless the market rent is more like $200.
You guys are right. Perhaps I am mistaken, but my logic is that a park with more lots and lower rent is more attractive than a park with fewer lots and higher rent because lot rent increases can be smaller and vacancies won’t hurt as much. Obviously, there is more work involved with more tenants.
Actually I have found plus 200 space parks can be easier than 50 space parks to operate. Your business model for operation can collide with the park you just bought or lack of any business model and some parks are operated like a real business and generally are the ones to buy and residents understand rents will be raised every year or at least at the upper end of the market.
Our average park size is 100 lots, and we own parks from 30 lots to 500 lots. Keep an open mind on park size and focus on the profitability of the raw deal. I’d rather have two great 50 lot parks than one average 100 space one. Many of the institutional buyers get hung up on the “I only buy 100 lots and bigger” mentality, and miss out on some great deals as a result.
The only operational efficiency of a large park is that you can typically afford better managers. Otherwise, you have the exact same costs of utilities, insurance, property tax, etc. per lot. From a portfolio diversity perspective, owning one 500 space park is much riskier than five 100 space ones.
Just keep an open mind on park size, that’s all I’d suggest.