30 lots. 29 filled. Mid-atlantic area. No park owned homes. Older homes. One person owns 6 homes and another owns 4 homes. small town of 1700 people, 18 miles to walmart. no metro area. Lot rent is $150 but owner is raising it to $175 prior to closing. septic system. purchase price is $315k. I’m pricing it at 12% cap rate with $7k of annual maintenance cost for septic repair and pumping.
Would you walk away with this cap rate given the rural area and no population growth?
Any thoughts would be greatly appreciated.
Your price comes to $10,862 per occupied lot. At a 12% cap rate that means you’re expecting to clear $1,300 per lot per year on a gross of $175*12=$2,100. Or expenses of $800 per lot per year. Are you sure you can keep your expenses that low? That’s a 38% expense ratio. I know F&D suggest 40% is “normal” for parks with septic but with such low lot rents your expenses are certain to be higher as a percentage of your gross.
Is there any demand to replace the tenants? At lot rents that are increasing? This will make or break your deal.
What do the tax returns show for expenses because as Brandon said, the expense percentage seems low for rents of that level
I agree that it will be tough to get below 50% expenses with those lot rents and the smaller size of the park. The big driver is likely the real estate taxes. What are the taxes in relation to the effective income?
Thanks, Erik. yes, real estate taxes are extremely low - $800 a year. I also budgeted $7000 for repair and maintenance and 10% for management fee. I have asked to look at tax returns so have not seen those yet.
I have had major problems with tenants that own multiple homes and sublease them out. It is more difficult to control who is coming and going. I’m making my tenants that own multiple homes sell them.