As I await my home study course, a couple of quick questions please.
I have run across a couple of parks where 35 of the 45 lots have trailers And charging lot rent. Maybe a couple of empty trailers and 8 or so empty lots. If infastructure is good and the numbers seem to work, what are the pros and cons of such?
Also, how does septic affect the cap vs city sewer. What about well water? I prefer to stay away from lagoons.
Thanks in advance …
Don’t value empty lots at anything more than $0 - not unless you are buying a park truly in a major metro and your test ads show people who already own their mobile homes ready to move them in. You need to be compensated for the time and money hassle of preparing lots and finding mobile homes to move in. So I’m not saying don’t fill those lots; but I am saying, don’t pay the current park owner for the ‘privilege’ of going to work and improving the property.As you are a newbie, I’d not suggest you purchase a property on well water or septic or anything other than full city utilities.Best,-jl-
Thanks Jefferson. I think this answers my question from my post.-Jaden
So of the numbers work, a test add pulls sufficient calls, and infastructure is in place, you see no issues with purchasing a park not at full capacity. I plan to reinvest all profits for first few years, and this strategy would allow me to pull trailers into the park.
The target occupancy to be “stabilized” (a lender term which means sufficiently occupied) is around 80%. On a 45 lot park, that means you need to have at least 36 occupied, which at 35 you are essentially OK. You want, on a first park, city water and sewer. Don’t even think about private utilities unless you are ready to write really big checks to fix them when they fail. The master plan is 10% cap going in with a ton of ability to push the net income by 1) raising rents 2) billing back water 3) cutting costs and 4) filling lots (but this is expensive and our least favorite strategy). You need market comps for #1 and a test ad for #4.
The park I am looking at has 31 of 42 lots filled, the appearance e is nice lawns and shrubs. The ability to bill water back is there as park presently pays water. At 220 lot rent. I see the value at 31 x 220 x 12 x .70 with 12 cap at 477000.
What is the approximate cost to meter water and what return could I expect? I plan on reinvesting profits
So this may work. Anxiously awaiting the home course as 1’park I was watching has been sold.
I must learn the simple basics of DD as have identified a couple of possibilities.
There are two ways I found to figure out this cost. Neither is probably the preferred way, but in my case they worked. The first thing I did when I looked at a park similar to this was to go ask the city if they would be willing to sub-meter it. When I say, asked the city, I mean I walked around, lost in a government building for about an hour until I found the right person to ask. It was ultimately a helpful place to start though. Although the city wouldn’t do this, they provided me with the name and number of a third party who would. When I called them up, they quoted it at about $270 per meter. A little out of my budget for capital improvements The next thing I did was I point-blank asked the park owner of a competing park in the area how they did it. Again, surprisingly he told me how he did it, how much it costed him, how he worked the billing, and some things to watch out for. As I understand it, the price on what you’re talking about changes from city to city and is usually tied to what you can get the city to do. There are obviously experts here more suited to answering this question, but that might provide you somewhat of an idea of the capital expenditure you might incur. Please let us know what you find out.
It will cost you about $200 per meter. But before you run out and do that, there are a couple more steps you must take.The first is to figure out the cost of water/sewer per lot. If it’s $40 per month or less per lot, then don’t sub-meter, just raise the rent $30 per month and be done with it. Because all you’re trying to do is basically raise rent, and billing water is not straight profit, as you have to install meters, read the meters, bill the meters, collect the money, and fix the meters. It’s a whole lot easier to spend 50 cents per lot and 100% of the rent raise falls to the bottom line.If the water/sewer cost per lot is more like $70 and up, then you need to hire American Leak Detection and see how many main line leaks you have and fix them. Then see where your bill is at. If it has knocked you back down to $40 per lot, then repeat the step outlined above and just raise rent. But if there are no main line leaks, then you are suffering from tenant abuse.With tenant abuse, the only solution is to install meters. That will drop the bill normally by 30%, and allow you to kick out the few that are using $200/month+ in water (world record is around $400+ per month in water from a guy who was secretly filling up a commercial water truck every night).So adding meters is not the right step until you complete the methodology above.
During my DD, i would expect to identify these costs. However, My plan would be to raise rents from the get go by 25 - 30 dollars to address unknowns and improve cash flow.
Is increasing rents immediately the best course of action?
Absolutely. You want to send the tenants a letter that says “the park is under new ownership, we’re going to make it the best park in the market, and the rent is going up to $____”. They expect you to do that. If you go to a restaurant and it’s under new ownership and has new menus, you fully expect the prices to be slightly higher, right?
I’m a newbie. Why does Jefferson make this suggestion:“As you are a newbie, I’d not suggest you purchase a property on well water or septic or anything other than full city utilities.”
Because they are risky and very expensive to fix. But let’s quantify that for full illustration. A lagoon sewer costs $250,000 to replace, and is probably going to be eventually banned throughout the U.S., so you have to be especially careful with those. A packaging plant costs $500,000 to $750,000 to replace, but they work fine. Septic systems cost $4,000 per leachfield (tank) to replace, and may trigger terrible grandfathering problems if you have to replace them. Wells cost about $10,000 to $50,000 to replace, and you have the worry about accidentally poisoning the tenants, or suddenly having no water. These are typically not things that the average first time investor wants to worry about. Of course, a terrific location and price can make you learn to deal with them as a trade-off, but you need to know the risks regardless.
Well Frank and Jefferson are at it again down grading wells and septic tanks. For 40 years I have not had ANY PROBLEMS and has allowed me to increase my profits greatly over city services. Since you are a novice jump in with both feet and educate yourself and their are ways to do due diligence that can safe guard that the septic system is fine without pumping one tank. The key is the lateral lines provided that the tanks are adequate size and concrete. My first park with 225 sites 40 years ago is still in operation doing fine on septic tanks. Presently with 136 sites my water bill 3 years ago was $5.500 per month on city water and is now less than $200 per month including chemicals on wells. As other operators who have blogged we will take the (so-called) risk to gain big rewards!
One needs to be very careful when quoting the costs with operating such a system. We have a well at one of our parks, and the state requires us to monitor and treat the water. The newest EPA regulations required us to move from a SPO (site specific Operator) to one that any large city would have on staff. The new regs also required us to upgrade our treatment process. The upgrade cost about $20,000 in capital improvements, and the new guy to monitor the system added about $750 / month in costs. We only remove nitrates, but this requires we ‘wash’ the nitrate medium with salt. So both Jefferson, Frank and Carl have good points. In fact all are correct in my opinion. The process is all about risk assessment and your application of skill sets. Private utilities are not for everyone.Opinions are great- but there is no right and wrong here. Both sets have upsides and downsides.