Question for the pros:I’ve got a 34 space park in my sights that I like but it has no immediate upside. There is no deferred maintenance that I can see and all lots are rented except for one that just became available. The park is already at max market rents of $340/mo including water, sewer (septic), and trash. It also has a single family home that rents for $950 per month.I’m thinking it needs to purchased at a 12-14 cap since no upside exists other than regular market rent increases. What would be your offer on a park this size with limited upside?
I wouldn’t consider myself a pro, but I see parks like this somewhat regularly. With something like this, we generally use a 45%-50% expense ratio to offset the increased deferred maintenance and unfavorable size. We would also evaluate it at about a 14%-15% CAP if there was no real upside. That would probably come out to between $450,000 to $500,000 for just the park. Then you would need to add in some kind of value for the SFH probably. One thing that helps with this is to find some favorable comparable sales in that market to support your opinion that parks sell for roughly $13,000 a lot. You definitely don’t want to throw out an offer like that without something to back up your argument. Look at the recent REO sales in your market to find these comps. It’s probably a long shot to get it that low, but that’s what it would take for me to get excited about a park like this.One thing of note is that we use investors to purchase parks. When you have a deal like this, you really need a lot of meat on the bone to make it work for an investment fund. Value add stuff works so much better for us because we can buy it better and squeeze more out of it. Your goals may be different than ours and you might hit your target return with a higher purchase price. It’s really up to you to determine the return you would need to make it worth your time, money, and effort.
My offer is up to $615K right now, but I’m doubtful the seller will take it. That puts me at a 15 cap on good numbers backed up by tax returns. Park is very clean, extremely stable with many tenants having been there for 30+ years, and is a short drive from my office which is a major metro area. Seller had it listed for more than double my offer and I’ve provided comps showing that smaller parks aren’t bringing apartment type cap rates. While no upside exits, it should be a steady money maker for the long term.
I think you are in a good range for your situation. With the value of the house added in, we would probably be in the same ballpark as you are with your offer. I know this generally goes without saying, but be very careful with septic. One of our partners is losing three homes right now in one of his parks to a septic problem. Don’t be too discouraged if you lose it though. It’s better to make offers that make sense for you than to adjust your acquisition criteria just to get a park. I almost learned that the hard way last summer. Good luck and let us know how it goes.
Thanks Charles for your input. I think it’s the septic that is making the seller want so much since he invested over $230K for a higher end system 6 years ago. I will certainly be researching it’s life expectancy and maintenance requirements if we get to due diligence.