Park has 54 pads , all full with owner occupied mobils. Rent is 195 a month. Paved roads, city sewer, and water/New roads and water line. Park stays full.
Located in small town but mostly rural for 100 miles in either direction.
There is an additional 50 acres already approved for park expansion.
Asking price is 1,200,000, 400dn, 5% for 10 year with balloon at 10 year.
Park pays for water and sewer which is 19,000 a year.
I think it is easy to pass on the water costs to tenants either using submetered or sharing costs between each lot. Last rent increse was in January 2013
Only four apt advertised for rent in the town for 650.
Has a very capable manager and renters do all their own maintenance including yard maintenance. Manager mostly collects rents and deposits them. No collection problems. Owner lives out of state.
Looking to pay this off in 10 years with 300 dn.
Any suggestions to consider or look for? Looking for my first purchase.
Use this formula: 54 x $195 x 12 x .6 x 10 = $758,160. And a deal like this – in an area that rural – we would probably not touch at any price, but if we were to buy it, the cap rate would have to be higher than 12%, which knocks the price down to around $625,000.
Bottom line: it is WAY overpriced at $1,200,000. I’d definitely throw that deal back.
Rural location. I like to buy within 10 miles of a SuperWalmart. Is there one in this town? If not, that’s not necessarily a deal-killer, but it does mean you’ll have somewhat more difficulty finding new residents. Run a test ad on your local CraigsList.org and see if you get at least 25 calls/week (include photos of a representative mobile home). If you don’t receive that call volume, then that’s a really big red flag.
Price. As you probably know from Frank & Dave’s valuation formulas (buy their books if not), this park is actually worth:
54 pads x 195 monthly lot rent x 60 multiple since park pays water/sewer = $631,800.
So before you even run a test ad, you need to have a meaningful negotiating session with the seller. If he is stuck on his price (2x what the park is worth), then walk away. But leave it on good terms. He’ll not be able to sell the park to anyone else, and may well come back to you within a year at your price and sell. Otherwise you’ll find a comparable or better park elsewhere at a reasonable price.