Park evaluation near Decatur,TX

Hi Everyone,

I am under contract to buy a small park which needs TLC near Decatur Texas. Appreciate your feedback

Number of Lots : 21
Lot rent : $100 per month.
Monthly income ( lot rent + POH rent ) : $1400
Tenant pays for water and sewer billed directly by City.
Park is within City limits and grand fathered.
Purchase price : $165K
Downpayment : 10K , remaining carried by Seller as “contract for deed”

There is upside to lot rent and monthly POH rent as many are vacant now ( needs to be fixed before renting) . Seller is very old - upfront told is unable to maintain the park and hence selling .

Appreciate your thoughts on this purchase.

Off to a good start on the surface, but a few questions that could help us dig a little deeper:

What is the mix of Park vs Tenant Owned Homes? What is the market lot rent is for the area? Are there any major capital improvements needed soon? What is the ammortization and duration of the CFD?

Make sure you include terms in the CFD if the Seller passes away, either so it carries over to the beneficiaries or triggers you to obtain a conventional loan. Others may have other ideas on this.

21 x $100 x 12 x .5 x 10 = $126,000. So the price is high at $165,000. However, I think that you have to factor in the fact that the lot rent is absurdly low for the Dallas/Ft. Worth metroplex. In addition, you have to factor in the price to rehab the homes, as well as the fact that the seller is willing to do huge leverage.

If you go to the end of the movie and estimate that you can get 21 x $250 (more typical for rent) x 12 x .6 x 10 = $378,000 at the end of the project. Assuming that you can repair the homes for $35,000, then the deal stands to be able to make you around $180,000 or so if you complete all the work and stabilize the park. Turning $45,000 into $180,000 is not a bad thing.

But this deal is obviously complicated and you need to get a good handle on many things such as:

  1. The market lot rents

  2. Exactly how many POHs are vacant and what it will cost to rehab them

  3. The results of a test ad (even though Decatur is in the D/FW metroplex, it’s a town of only around 6,000 and I’m not sure of its desirability)

  4. The interest rate, ammortization and balloon on the seller’s note

  5. The condition of the current infrastructure

The bottom line is that it may have merit – I just don’t have enough info. to say for sure.

Also going in make plans to off load POHs to tenants as it will add greatly to the value when looking at your exit strategy.

@frankrolfe @jhutson @Greg Appreciate the quick response. We decided to take the plunge. Thanks

@jhutson Around 60% lot and 40% POH. Current market rent is $175 - $200. I estimate around $40k as capital expenditure. Note is for 15 years with 10% interest.
Let me check with the seller on what happens to loan in the unfortunate event of him passes away . Thanks for raising this question. Appreciate it so much.

I’m not sure how important the Seller Financing is to both parties for the transaction, but the interest seems a bit high. If you have flexibility to negotiate it down or instead use a conventional loan it could offer lower payments. Not a deal breaker just an observation.

MKV, the monthly payment on that note is higher than the current monthly revenue for the park. I’ve had success in negotiations in the past when I’ve pointed this out to a seller. I think we can all agree that you will be doing things to the park that will ultimately allow it to easily cover the note. However, it’s never a bad idea to show the seller that you really can’t carry a debt load that is more than the current gross. Let him know that this project can be successful but it will take a few months to a year and a lot of capital on your part to make both his investment in you and yours in the park as safe and successful as possible. Throw it out there as a concern and see what he says. He should genuinely want you to succeed if he really doesn’t want the park back.

Lowering the interest rate to 7% and stretching it to 20 get’s you below the gross and probably makes your numbers look a whole lot better. It’s still a win for the seller because he’ll still making more money off of you this year than he will the park. I would also add in a period of deferred payments if possible. Maybe 3 months worth.

Thanks everyone for the advice. Greatly appreciate it.
@CharlesD As you suggested we added a period of deferred payment to the contract.