I have not been able to find a park to purchase at a true 10 cap - after I weed thru all the bogus numbers. All the brokers are telling me that they are selling for no more than 8-9% max - that if they were selling at a 10 cap it would “create a stampede.” Is a 10 cap still possible in this market? I am worried about the spread.Thanks!
Yes, we buy 10% cap rates all the time. But where you are making a mistake is letting the broker tell you the cap rate. We’ve bought parks that the broker thought were 0% cap rates (like our park in Kankakee) that we converted to 20% cap rate in the first year by cutting costs and raising rents. Don’t listen to the broker – you have to do the calculations yourself. A deal that they say is an 8% cap may be a 10% cap when you run the numbers correctly (replace the manager, raise the rent, etc.). Of course, we’ve also seen deals that the broker promised are 12% cap rates that are actually more like 6%. So when you see a deal that looks interesting GET THE PACKAGE AND RUN THE NUMBERS YOURSELF.
Frank,
Do you always get “your price” when putting a deal
under contract, or will you sometimes slightly overpay with the intention of
going back to the seller early in DD for slight renegotiation?
For example, say you see a listing that is $100k overpriced
based on your calculation. Would you tie it up immediately, then try to go back
to the seller to lower the price early in DD once you actually dive into the
numbers from his tax returns, bills, etc? So then you can use his own provided
numbers to justify the lower price. Basically, the idea being you don’t want
to spend much time negotiating prior to tying it up so as to prevent another
investor from snatching it up at the full listed price.