The Cost of Filling Lots

I am trying to figure out if it makes sense to sell a building to raise capital to fill the empty lots in my parks. What would be a good ball park figure on how much it would cost to buy and set up a used home in the upper Midwest that would rent for around $495?

Repo $20,000+ or so, new home $30,000+ or so.

is it correct to think a 250 lot rent and 10 cap would support a 30K home at a break even. the increase of value of the park would equal the cost of the home … however a 20K home would make much more sense. 

There’s really two different ways to look at this. One is the standard home rent - lot rent - property tax - insurance - R&M = amount that can be used to payback the home cost. But another way, really, is home rent - property tax - insurance - R&M, because without bringing in the home, there is no lot rent. So if you bought a home for $25,000 and have $250 lot rent and can rent the home for $600 per month, then the classic equation would be $600 - $250 (lot rent) - $20 (property tax) - $20 (insurance) - $80 (R&M) = $230 x 12 = $2,760, so it’s basically a 8 to 10 year payback.But the other (and maybe more fair) equation would be $600 - $20 - $20 - $80 x 12 = $5,760, which is a four year payback.The classic equation works great on evaluating existing park-owned homes – no question about it. If you inherit a park-owned home, and you are trying to choose between renting it and simply giving it to the existing tenant and booking lot rent, then this formula shows you the real score of what to do based on dollars and cents.But when you’re filling a lot by buying a home and bringing it in, there’s no option to just rent the lot and give the home away. So it’s either all or nothing. So I’m not sure it’s appropriate to back out a lot rent opportunity cost that does not really exist. Make sense? 

i see your point, almost like spending money to pay yourself. I am not sure which way I lean here. While example 2 gives a true payback analysis, I almost lean towards example one. My thinking is if I fill a lot, I want to be able to use the include lot rent to repay me for my aggravation I am likely to experience. If I use the 4 year payback, I almost see myself as receiving no return the first four years. At the end of the day, it has little effect on the business per se outside of any tax advantages that could be present.In general, what would you value an average lot in the ind/oh area. I know there is no set answer here, but in general, is there a range for a lot value in a nice park. As I said I was asked to offer based on a lot price, however I offered a price for the park. Maybe due to the unfinished lots, he asked me to outline my offer in this manner.thanks 

On either example, the race is on to recoup the home and then you have the lot rent in perpetuity. You will have less mental aggravation if you use example two, because you basically get paid back in year 4 and then it’s all profit thereafter. Example one is really just mental allocation because, again, you do not have the option to just lease the lot ad there’s no home unless you bring it in.Indiana and Ohio are big states and there is huge fluctuation in lot rents. The value of a lot is based on the lot rent and operating expense ratio. To build a lot is about $10,000 per space, plus land. But there are also soft costs, such as tap fees and, in Ohio, extreme lot preparation costs which can easily top $5,000. So that’s a really, really hard question to answer.

I have parks in NE IN and get homes off of Craigslist, people I know, or circumstances. I can get nice 90’s homes for around 10k. I then pay around 5k to move them and set them up nicely with a deck and new skirting. I have been filling lots on this kind of budget for over a decade. I have bought homes out of southern MI and NW Ohio at these prices also. My parks are nice parks also, definitely above average for small town America.  Many of the homes are 16 wides. Some with vinyl siding. I have never spent 20k to fill an empty lot. Those empty lots are much more attractive when they can be filled with a nice home for 15k. Then collect rent of $500/mo. The recovery of your investment is within a few years usually. About 1/3 of the time I sell the home for cash and recoup my investment within months. Then collect lot rent for years generally. I may not pay much for empty lots if I am purchasing a park, but if I own an empty lot it has value to me for sure.

OK I  will be working in Ohio, so I see where Frank has mention preparation costs that can top $5000 and that will definitely affect my budget. I am putting together a pro forma and looking to estimate build out costs.The additional land I will gain in the sell has water and sewer lines in place for a planned 18 additional lots. The expansion was planned but due to a death the plans were put on hold. Is there a way to estimate build out costs for these lots. My thinking is a street (present streets are concrete) will need to be built as well as electric run to the lots.I will be visiting during my dd phase in a couple of months, the land is being surveyed for division first. I will be asking questions to find out more during my visit. What key questions should I ask specifically focusing on the additional lots ( I am not worried about zoning but will confirm). One of the owners (5%) owns a construction company and essentially built the park. I will look to use him during slack periods to hopefully minimize cost.