Ok so furst time buyer, have been looking for a while and found a park that seems to have come up a couple of times. Looking at 88 lots with 22% occupancy many many park owned homes. The place is dirt cheap with owner financing and has been foreclosed on in the past. So we are looking at 19 rented lots at $260 with city water and sewer not sub metered. In a major city (287k pop) coming out of the recession I am very tempted to make the call on it. So my question is, have I lost my mind or am I seeing something there. My due diligence does show moderate to low risk flood zone. Help
@MichaelG how much do they ask for it?
under 200k for the place and my calculation is coming out to 350k so I’m thinking I’m missing something or I’m overthinking it and allowing paralysis to set in.
I do not think you are over thinking it. This investment is a serious challenge. Low occupancy with POHs is going to make this a very serious hands on investment which is why it has had so much trouble in the past.
The only value is in the 19 rented lots but the question is how much of a negative impact do the POHs and vacancy place on the business.
Are those 19 lots POHs or owner occupied.
3 owned and 16 poh but the google steetview that actually goes through the park shows many more homes that are vacant. Attempting to get more information now.
How do the rents breakdown in regards to lot rent verses home rent.
Honestly it sounds like more of a challenge than it may be worth. Lots of work either managing the rental home part of the business or selling them. Business may simply be poorly run or there may be bigger underlying problems .Personally I hate the idea of POHs as part of the business.
You are going to need to be well capitalized to take on a park like this. What you need to do is look at this deal under the microscope of each home is going to take $3,000 to $5,000 to renovate and I’m also going to lose at least 25% of my current renters through the turnaround process. When you look at it this way, determine what the capital requirement will be and if that is the most efficient use of your money. You may also want to take a good look a your time as well under this same microscope because that will certainly be a factor too. Good looking deals at 22% occupancy with a large POH inventory rarely pass that test. If you have really good demand from people who can realistically qualify, this might be workable. This part of the equation can’t be a, “I think there might be” answer though. This needs to be painfully obvious.
Maybe look at the land value itself. Is there a profit in buying and closing down the park to resell the land for development. You would only be displacing the 3 owner occupied.
Good points, and questions I’m asking too. This place could eat me up, but there is the chance for it to just need someone running it like a business.
With that many vacant homes you have to ask if there’s any demand. I looked at one park where the owner literally couldn’t give homes away. I think a test ad would answer a lot of your questions.
I agree with @Coach62 > I received one listing from a broker and it looked like a good deal with fine occupancy. However, I posted test ad and nobody responded.
i just purchased a park in sort of a similar situation this yr. mine is 97 sites and came with 57 park owned homes. A lot of those park owned homes were 70’s vintage homes and were in such bad shape they were not worth saving. we ended up tearing down and demoing around 25 homes and throwing out 25 bad tenants, the biggest thing i underestimated was the cost to tear down and dispose of all the junk homes. luckily we came into it with a lot of cash, but it has been much more labor intensive and expensive than we had originally planned. We bought the park at a huge discount so it really has been a great investment. I would have never attempted something like this for my first deal though. The park you are looking at has been in foreclosure and had all those issues for good reason. Filling sites and cleaning up is very expensive and takes a lot of time. If water and sewer is not sub metered that would be the first thing to tackle. Rebilling makes a huge different to the bottom line.
I would start at the end of the movie and work backwards
If you got all 88 lots occupied at $260 per month, and assuming the park pays the water/sewer, the approximate value would be 88 x $260 x 12 x .6 x 10 = $1,647,000. To achieve that, you’ll need $200,000 for the park, probably another $100,000 in home renovation costs likely. You might be able to find 10 more of those abandoned homes that can be salvaged for $10,000 per home, so that’s $400,000 in cash to hit about a third occupied. You might be able to do the remaining lots with Clayton’s CASH program, and you’d then have to sit on it for a few years before selling it or refinancing it. The theoretical profit is $1 million if you play it right. That’s worth looking into, for sure. I’d tie it up under contract and get a handle on the homes and the floodplain, as well as the city permit, etc.
But remember that deals like this are extremely capital intensive, and highly risky as they are totally illiquid and impossible to finance at such a low occupancy. In your diligence, you’d have to find a huge demand, higher market rents – everything would have to be fantastic in order to take the risk.