Been to the bootcamp (highly recommended by the way) and I understand the risks with septic parks. During bootcamp, a 40% expense ratio was recommended for septic parks. I know there is a replacement risk (tanks were installed between 1978 and 1995) at some point.
Park is in a major metro. Here are park stats:
73 spaces, 71 occupied
Lot rent $305, market is $350
County water, individual septic for each pad (common for the area)
So NOI would be calculated as 71 x $305 x 0.6 x 12 = $156k.
Sellers are a private investment group and showing 2015 NOI of $216k. They have a price in mind, but are flexible because they want the deal to close.
I’m considering using a 35% expense ratio to determine my upper limit on price, rather than 40%, and would like to get some more season opinions.
What exactly is the full septic set up. Tanks are not an issue other than the cost of pumping every 3-5 years but where does to effluent go to, Is there a septic bed or some other system of treatment.
Seller is feeding you funny numbers. Noi of 216,000 represnts 17% expense ratio. Park is taking in 259869 with 71 lots at 305. Have they given you actual P&Ls?
Your expense ratio needs to take into effect the maintenance of each of those septic systems. it’s fairly easy to have a big septic system cleaned and inspected, but doing that for multiple systems in the same park can cost a bit more.
Individual tanks on each lot with one common septic bed… Tanks require pumping once every
3-5 years depending on number of individuals occupying each home. Cost to pump each tank depends on size of individual tanks and local pumping rates.