When looking to purchase a park should the monthly gross be able to cover expenses and a new mortgage? How do you factor this in? Example:
Price:600k
60k down
monthly payment $3868
NOI(based on owners expenses of 25% which we may be able to lower) – 4442 per month (this does not include rent from 5 POH as we only included lot rent from these)
Also we should be able to raise rents at least 25-50/mo ( adding 725-1450/mo)
essentially leaving us with a profit of $574 month before increases
Is the asking price to high?
It just depends what type of return you want. Most people like a 10% cash on cash return, some say 15 to 20% or higher.
A 560K loan for 20 years @ 6% seems reasonable for your monthly payment (I assume this is Seller financing with 10% down), sometimes your can find a 25 year or 30 year loan which would reduce your payment even further.
Assuming that the 25% expenses are all inclusive then that leaves you with $6,888 pure profit for the year. Considering you only put 60K down that’s an 11.48% cash on cash return. Not bad.
Make sure the expenses are reasonable, such as making sure you have a 5% management fee (yes, your time is worth something) and that you’ve accounted for increasing tax burden, and set aside a reasonable % for capital improvements, as a means to lower the price with the Seller if possible.
Between raising the rents and reducing expenses, and assuming you will rent credit the park owned homes, then you should have a comfortable buffer to have a healthy CAP rate.
25% expense ratio on what appears to be a smaller park? How many lots, what’s the lot rent, utilities, who pays. Not nearly enough info but seems like it may be a bit fishy to me.