70 of 71 lots rented for $150 month.On city water/sewer read & billed by the city.City maintained roads throughout.Trash billed directly to tenants.Directly on the main road in town.$950,000The property also comes with a commercial building (14,000sqft+) at the front of the park consisting of 3 units and a single family home. Two of the commercial spaces are rented (hair salon & convenience store) and one is being used as park storage. The single family home is already parceled off and comes with the deal. The city is in a metro of 400,000 and has a primarily hispanic population (49%). It also has crime rates and a school system that ranks about average with the rest of the US. Diversified employment and a major college are near by.My questions on this.How difficult would it be to parcel off a commercial building. The building is at the front of the property and both roads in the park run along either side. It does not appear that this would cut off the park from the main road. Does anyone have any suggestions for going about doing this? There are no other parks within 10 miles. Obviously, he is well below the market rent, but is there another way to evaluate this without using comps?
As a general rule of thumb, your lot rents can go to about half what a 2BR apartment rents for. You can get that data from RentOMeter.com. Just input the zip code that your park is in.Valuation:* $150x70x70 = $735,000 for the land (12% cap) or up to* $150x70x84 = $882,000 for the land at a 10% cap * Plus whatever the SFH and commercial property are worth. You’ll need to find local brokers to give you comps to determine that value.Parceling-off the commercial building and SFH and keeping the MHP would be the way I’d do it. I had a similar situation with a park where the then-current owner parceled-off the commercial building up front and just kept it for himself, so I did not have to spend the time/money to do it. See if you can do the same and just purchase the MHP. If not, then head down to your local City Hall and get their input on timing and costs to split off the non-MHP assets.Good luck, sounds like a solid deal,-jl-
I adamantly insisted he kept both items, but he said he wanted to sell all of it as a package deal. The house is probably worth $70,000 and I assume the commercial is worth at least $120,000. The way I’m looking at this is sort of a weird $0 down thing if both can be unloaded to get the down payment back. That would also fall in line with a 12CAP when the dust settled. I think the hairy part would be dealing with the bank on something like this though.Rent-O-Meter kicked back $525. I’m guessing the rent could go between $230-$260.Definitely appreciate the advice and I’m sure I’ll be in touch with you in the next two or three weeks.
I like your thinking about $0-down. However I suspect the bank will want to be paid back proportionately. So if they lend 75% LTV, they will want 75% of any sale proceeds from the SFH and commercial building to pay their loan. The way out of that conundrum is to get another appraisal showing the property is worth substantially more than the $900,000 you’ve paid. The bank may make you wait one year before re-appraising. That said, if the property then appraised for, say $1.1mm, the bank might be comfortable letting you keep your entire $190,000 from the sale of the SFH and commercial building figuring what remained was still worth $900,000.Good luck, and let us know how it all turns out for you,-jl-
We have subdivided and sold off probably 20 buildings over the years. It is not hard to do, assuming you meet the minimum requirements to be subdivided, which you can find out with a call to the city. You will probably have some cost in doing so, such as survey, application fees, and you may have to run new, separate water and sewer taps to the city for the buildings. You should discuss this plan in advance with the bank and get a release price (how much of the sales proceeds they will get). You will not be able to subdivide without their permission.On guessing the value of the buildings, always shoot low, as being next to a park makes the appeal to a buyer diminished.
Definitely going to push hard for seller finance on this one then. Thanks for the advice Frank. I should be able to use this as pretty good ammunition to have him carry the paper.
Hi EveryoneOn the same subject. I am looking at a park in the northeast which was approved for 48 sites, Currently 32 are occupied at $350 each for a yearly income of $134,400. The other 16 lots need cement slabs per regulationThere are 2 additional buildings with a total of 10 apartments which produce an additional yearly income of $70,000There is municipal water billed directly to the tenants with a septic system (no sewer connection)Located about 5 miles from a Walmart Super centerThe park needs some tender care, like landscaping, road resurfacing and garbage collection areas. I therefore figure at least a 60:40 ratio rent vs expenses My question is, how do I value such a parcel and to figure the the highest price worth paying for this park (seller not offering financing)Any help would be appreciated
32 x $350 x 12 x .6 x 10 = $806,400 value of park at 10% cap rate. If the apartments are $70,000 of net income (not revenue) then add $700,000 at a 10% cap rate. The total maximum price would be about $1.5 million. But the problem with this deal is that you have way too much of the value in the apartments – they may scare off many mobile home park lenders. I would first call Pierce Redmond at Security Mortgage Group at (585) 423-0230 and get his opinion on what the financing amount could be. That price also includes all cap-x improvements, so if it needs $100,000 of work day one, then the price would be $1.4 million to compensate.
Thanks for your responseThe $70,000.00 is revenue. However besides the depreciation and possible repairs there isn’t any extra expenses. Tenants pay their heat and water (but not repairs)As taxes, fees and roads etc, is already included in the expenses of the general park, I wonder whether 70,000 X .6 X 10 = 420,000 is the right formula for this deal. On the other hand I envision a much more intense management involvementShould a house vs a lot not be valued at a higher cap rate? The seller is asking 1.4 M Thanks
So I would say that the deal is roughly worth $800,000 for the lots and $400,000 for the apartments, for a total of $1.2 million. This is just every basic, and would be completely contingent on due diligence. I’m pretty sure, however, that $1.4 million does not work.
Thanks for your helpThe broker is very intransigent and doesn’t want to relay a lower offerHope he will mellow
Starvation mellows people.
Spoke with both the city and a few real estate agents about this property. The city was very receptive of the idea of getting the commercial building away from the park (you called it Frank). The result would be that the park lost three spaces which could be avoided with the purchase of an additional acre of land the seller also owns adjacent to the park. This is based on a density issue of 1 home per 10,000sqft. Otherwise, the pitch of making the park the best in town worked perfectly. Both the city planner and inspector gave me their personal home numbers and were more than willing to facilitate this process. The consensus from the commercial brokers was that the building was worth between $300,000-$400,000. They already have two interested buyers lined up who are looking for commercial in that part of town. Because of scheduling conflicts, I’m tying this thing up tomorrow. Thanks for the help Jefferson and Frank. This thing is going along smoothly because I’ve had the forum to guide my diligence and questioning. I’ll update this thread if there is anything funky, but so far, this park has exceeded my pessimistic expectations.
Keep us posted! Brandon@Sandell
Charles:The other thing to look at is how you subdivide the lots. If you have 16 potential development spaces that you don’t ever anticipate using and if they are located contiguous with the commercial property, you could always throw that land in and then seek a reduction in your property taxes. It also increases the occupancy of your park because you’ve reduced the denominator, although since you’re at 70 of 71 actual pads occupied, that shouldn’t be as much of a consideration.Best of luck, it sounds like you’re well under way.Will
Frank I’m trying to pick up your rule of thumb valuation math. You gave:* $150x70x70 = $735,000 for the land (12% cap) or up to* $150x70x84 = $882,000 for the land at a 10% cap What is the last 70 in the first line and the 84 in the 2nd line come from? Guessing it’s a rule of thumb expense ratio and cap rate multiplier.