Posted by Ryan_MO on July 17, 2003 at 22:44:07:
about not wanting to include the Section 8 premium while buying, but when selling you want to include all of that premium since it is real income, since it makes your value higher, correct? Thanks for your continued constructive comments Tony. I really appreciate them.
Ryan
I hate to burst someones bubble…but - Posted by Eddie-MI
Posted by Eddie-MI on July 17, 2003 at 09:35:02:
…This latest success story sounds ridiculous. A 7 unit trailer park is worth 240,000? Yet the purchase price is 61,000? I hope this has brand new doublewides in it.
Then he goes on say that he is buying a 10 unit park for 400,000??? Thats 40,000 per space. Those kind of numbers don’t make much sense to me. After developing 4 additional spaces and raising rent, a 14 unit park will be worth 1 million?
Don’t mean to put down someone, but I would be interested to look at these income/expense numbers.
Eddie
Re: I hate to burst someones bubble…but - Posted by Tim
Posted by Tim on July 18, 2003 at 06:46:34:
I read all these posts, & then I read the success story. I might even have bought the 7 unit park at auction for $61,000. I find it hard to believe that a bank will be lending $200,000 on a property that just sold for $61,000, but if there is one please let me know, I want to refinance all my properties. The prospective sale prices that are quoted don’t seem realistic. There are people who think a property is worth 100 times monthly income, & I have even seen people pay that for SFR’s & be happy. I wouldn’t buy a property that is valued that way, the numbers just don’t work for me.
I would like to congratulate you on buying a property that cash flows, but I personally don’t see much appreciation. When you bought this property at auction the people you were bidding against were more than likely the real estate investors from your area. These are the people that would probably buy any investment property that came up for sale. What makes you think the property is suddenly worth a lot more because you have filled a couple of spaces? If there wasn’t anyone at the auction & it was advertised then you have to consider that other investors were not interested at any price.
Re: I hate to burst someones bubble…but - Posted by joe
Posted by joe on July 18, 2003 at 24:31:51:
Eddie, I agree that last success story seem like a fairy tale. How can a park of only 7sites be worth 240000. IT cant unless what Briton says its on the beach in Califoria. I own 3 parks in the southeast and this guy is dreaming.
Then he bought a 10 site park and can expand to 14 and this park will be worth 1,000,000. WOW! That is a whopping 71428 per site. I have never heard of that before and I have been in this business 20 years. I do know nice parks with city utilities in large metro areas in the southeast go for 22,000 per site and that is for a 4 star park. This guy majored in finance. He really know what he is talking about and boy is he creative with his numbers. By his math a friend of mine owns a 80 site park with all city utilities, off street parking large lots. His park that he thought was worth 1,500,000 by Ryans math is now worth, are you ready for this, 5,714,240. Holy cow im going to go out and buy parks at market value and turn around and make a whopping 4 times my money.
I dont mean to be hard on this college finance grad buy his math does not add up. If it does please email the number of the buyers you know who are paying 4x what parks are worth. Now im going to bed to dream of all the $$$ im going to make.
Joe
Re: I hate to burst someones bubble…but - Posted by My thoughts exactly
Posted by My thoughts exactly on July 17, 2003 at 11:35:05:
I was waiting for someone else to notice. Let’s hope he is very savvy, and not just feeding the “desire to acquire”. Maybe he can come on and explain his #'s
Its me, Its me - Posted by Ryan_MO
Posted by Ryan_MO on July 17, 2003 at 11:34:24:
Hey guys, I know and understand your reasoning for scoffing at my recent story. In short, here are the details of the one that went down, and i have rent rolls and everything to prove the numbers.
7 mobiles
units 1,2,4,6 are 3 bedrooms - rent $350
units 3,5,7 are 2 bedrooms - rent $250
There is a 3 bedroom and 2 bedroom vacant. current revenue is $1550/mo. We have those 2 vacancies about to be filled with several candidates we are reviewing.
When both are filled in the next few weeks, they will be bringing in $400 and $450 because they will be section 8. So at that time, revenue will be $2400/month.
Now expenses are minimal. Tenants pay all their own expenses, and cut their own yards. The only expenses i have are insurance, taxes, trash pickup, and actual home maintenance. My new insurance policy is roughly, i havent received the first statement yet, $600 for the year including trailer insurance and property liability. Last years expenses totaled $2,476.52 with a annual revenue of $25,800. The old owner had it full last year and recently became ill. So you see, last years NOI was $23,323.52. That comes out to a value of about $230,000. With our raised rents and filled vacancies, it WILL be higher.
Now I know many people say not to value a park including rental income and base it on the lot rent. What if the property is in a predominantly rental area for this type of housing. It is in a small town, white picket fences bla diddy da. Many people own their stick builts but for the most part, the trailers in town are rentals and pretty much filled. But as far as valuations of a small park, mst if not all of the parks I have ever looked at under 15 units are predominantly rentals with park owned units, and are valued as such based on the rental of the unit not what the lot rent WOULD be. And these are properties form all over the country.
As far as the other 10 unit park which i am about to close on, I have all the numbers to prove its worth, again it is a rental park but it is ALL section 8. My rent comes guarenteed from the gov’t every month. But all i will say about that one now since it isnt closed yet, is that even if I can’t sell it in 2 years to someone will value it based on its INCOME and not what lot rent WOULD BE, Ill gladly sit back and receive my half of after debt service income of $59,352.66. Oh yeah, and Uncle Sam is paying me that. So even if I can’t sell out in 2 years and cash in on a 1/2 mil in cash form the park like i said in my success story, I will gladly make the same sitting on my sofa paying a few bills as my collegues just graduating will be making in their new $35000/year marketing JOB.
I apologize if I just ranted a bit, I just wanted to get out details and answer as many questions/comments ahead of time, cus I can see them coming. If you have any questions about my recent aquisition, then please dont hesitate to ask me.
Ryan
Mabye its on the beach in Cali, hehe, NT - Posted by Briton
Posted by Briton on July 17, 2003 at 10:19:06:
NT
Re: I hate to burst someones bubble…but - Posted by Ryan_MO
Posted by Ryan_MO on July 18, 2003 at 13:24:18:
Hey Tim,
I have a verbal statement from my banker at US bank saying that I should refinance the 7 unit with him in a few months after I have a 1/2 year of documented revenues and expenses to show. This is teh same banker that is loaning me 80% of purchase price for the 10 unit, $320k, and 80% of development costs, with our down payment of $100k.
If you want his name to do your refinances, im in St. louis, i can give it to ya but he doesnt deal too far out of the St. Louis metro area.
Thank you for the congratulations on the property. Despite the lack of appreciation for the property besides a good purchase price and 2 vacancies to fill, I still think its a great buy for myself still being young and it fits my current investment goals.
Ryan
Re: I hate to burst someones bubble…but - Posted by Eddie-MI
Posted by Eddie-MI on July 18, 2003 at 10:08:56:
I am thinking he slightly overpaid on the 7 unit at 61,000. And if he closes on the 10 unit for 400,000- that would be very irresponsible.
Of course, I could be wrong- I don’t know how nice the parks are. I also have a few section 8 rentals in a 32 unit park. (i paid 120k for 32 lots with owner financing) I think having rentals is good for cashflow. However- this guys valuations are off. He is underestimating maintenance. I picture these parks as a bunch of old trailers with well, septic and dirt roads- but a good rental market. LOL
10 units for 400,000
Payment on 400,000 at 6% for 20 years is about 2800.
10 section 8 at 500 a month is 5000 a month. Minus 50% expenses Minus the debt service is negative 200 dollars of cashflow.
The thing is though, a buyer can warp the numbers on any property to make it a bad deal. And a buyer can warp numbers any property to make it a good deal.
Re: Oops! - Posted by Don-NY
Posted by Don-NY on July 17, 2003 at 11:40:23:
oops!I posted my subject in the name line Sorry!
Re: Its me, Its me - Posted by scott
Posted by scott on July 17, 2003 at 18:42:56:
So your insurance is for a year, including liability and insusrance on the homes is only $600 per year. Now I really do beleave you are nuts and dont know what you are talking about. Also, when you go and sell your section 8 park real investors will not value the park on the income but will value the park on the income if just the lots where rented. Ive been around a long time and know how this business works. I have come the the conlusion that you dont.
Scott
Re: Its me, Its me - Posted by Philip
Posted by Philip on July 17, 2003 at 13:12:02:
Hey if it makes money…it makes money. I DIDN’t buy a well priced park…because I thought that even if I did raise it’s value…I might have the same problem finding a buyer for a 33 space park, just like the current owner is having.
If he were to slowly start to own and rent some units section 8, then his cashflow would go up, and I suppose the value of the park. As it stands he owns none of them and doesn’t want to…and I didn’t either for a long time.
I guess it all goes to show that value is still…subjective.
Philip
Re: Its me, Its me - Posted by Don-NY
Posted by Don-NY on July 17, 2003 at 11:59:36:
How much does a SFH on a village lot sell for in your town? What you are saying is a 2 br mobile that is worth maybe $2000 on a dealers lot, suddenly becomes worth $35000 on a rented lot.
Re: I hate to burst someones bubble…but - Posted by Tony-VA/NC
Posted by Tony-VA/NC on July 18, 2003 at 17:28:48:
Ryan,
The bankers I spoke to about my park mentioned that if I waited 12 months to refi, they would then base the refi on the appraisal (at that time) instead of the purchase price today.
Did your banker mean he would refi at the higher price in 6 months?
Tony
Re: I hate to burst someones bubble…but - Posted by Ryan_MO
Posted by Ryan_MO on July 18, 2003 at 12:40:19:
Hey eddie,
I’d just like to clarify the numbers on the 10 unit park you are speaking of. It hasnt closed yet by the way. first off the rents are not $500/unit but $550/month for 4 2 bedrooms and $650/month for 6 3 bedrooms, to be raised $100 each when we take over, and they will still be under FMR, so that brings it up to $6100/month in revenue the way it is currently.
gross - $6100/mo
expenses(all inclusive) - $2,356
Debt service - $2,530 $400K @ 4.4% 20 yrs - US Bank
NOI/mo - $1034/mo positive cash flow
Now this does not include rent increases to occur after we take ownership of $1000/mo for all 10 homes and also does not include interest only payments for 6 months while the 4 lots are being developed, which will bring in an additional $3400/mo, 4 4br @ $850/mo.
Hopefully this clarifies this properties numbers, because as of now it fits my investment parameters, and after the new lots are developed, I will pocket $6,263.40/mo in after debt service cash flow. I would think that would fit many investors requirements. Thats an annual 75.16% ROI from the initial $100,000 downpayment.
Ryan
Excuse Me! ! ! ! ! - Posted by Ryan_MO
Posted by Ryan_MO on July 17, 2003 at 22:40:13:
…but that was one of the most ignorant comments I have EVER seen on this board. You seriously are nuts to tell someone they are nuts and don’t know how the business works especially when they just bought their first property. I would gladly accept some constructive criticism such as the other posters have been giving me and have been sharing, but something negative to demean and belittle myself and my first venture into real estate is just plain ignorant.
If you really don’t believe my insurance and liability for 7 homes and 1 acre of land is around $600 or so, please give me your fax number and i will send you a copy of my statement when i receive it to sign in 2 days. Its in the middle of the country, how expensive would you expect dirt and 7 trailers to be insurance wise in the middle of the country.
Now if you are saying that a REAL investor wont value the park based on its income stream, but on its lot rent, are you calling Tony-VA and ScottS(NC) not real investors. If you will read their responses to posts of mine on this same thread, Tony said he prefers to value a smaller park based on its bottom line, and ScottS has posted a very insightful post several times on this board and reposted it in this thread regarding valuating parks less than 50 units.
Now I would highly appreciate if you do not answer another post of mine until you can realize that 1) not everyone may have the same education in this business as you, 2) value is subjective in RE, something you should know being in the business for many years and has been highly discussed in this thread.
Please bring only constructive, not destructive criticism to this board. Constructive criticism is what makes this site so great to all of us newbies and all the old guys and helps all to learn form our mistakes, and excell through our successes.
Have a good evening and I apologize for the length of my repost, just venting it all out.
Sincerely,
Ryan Gessel
Re: Its me, Its me - Posted by Ryan_MO
Posted by Ryan_MO on July 17, 2003 at 15:21:19:
Hey philip good post, I guess it is true, value is very subjective, depending if you are buying or owning or selling a property. As a buyer Id want to value a park based on the lot rent then add in the value of the mobiles, but then as a seller, or an owner wanting to cash out refi, I’d want to value it as high as possible including the much higher home rental cash flow. So I guess value is in the eye of the beholder. Thanks for the good post.
Also, check out Julie’s post today, she’s form Springfield MO and looking to sell her 1996 16x80, shes had trouble selling it the last few years. Sounds like a real smart girl though. I refered her to you since youre down in that area.
By the way, from your response you said “As it stands he owns none of them and doesn’t want to…and I didn’t either for a long time,” did you mean that you would now rather own the unit for higher cash flows? because up here in the St lou area, Section 8 rents are so high, theres no reason not to rent out a trailer section 8 as opposed to just renting the land. The increased cash flow is just too good to pass up.
Anyways, thanks for the response, and hopefully you could help out Julie too.
Ryan
Asking, “What’s it worth to me?” - Posted by Tony-VA/NC
Posted by Tony-VA/NC on July 17, 2003 at 15:20:36:
Value is subjective.
Certainly if you can buy a park based solely on the ground rent, do it. The homes themselves can be gravy either as rentals or Lonnie deals.
Lonnie was a Landlord for 30 years and has every right to be burned out. I’m just barely that old and am not burned out landlording yet. Longer term income is more important. When I do burn out, then I will consider Lonnie dealing off the homes.
I too will search for a park for sale based solely on dirt but in the meantime, I am going to continue to buy properties that make me money.
What is it worth to me? Kind of simple question isn’t it? But that is what we are talking about. Not what it is worth to others. I am not willing to sit on the sidelines and watch money float past while waiting for that perfect deal to surface.
We are valuing income streams folks. At least that is my approach.
Real Income Figures (based upon my knowledge of the market).
Minus the Real Expense Figures (confirmed by me).
Minus what I need to make to do this deal.
Minus the Real Debt service.
Bottom Line is NET PROFIT to the deal over and above my take.
I let the money available, or terms available dictate my MAX purchase price. My profit is already built in.
As I said in the other post, there is more than one way to value a property. What matters is “are you happy with the money that your efforts, and your investment make you?”
Tony
Re: Its me, Its me - Posted by Ryan_MO
Posted by Ryan_MO on July 17, 2003 at 12:10:29:
SFH’s are anywhere from $30,000 to over $100,000 in this town. Now if I understand you correctly in what you are saying about the $35k mobile, is that is what the MH would be worth valuating the park based on what the lot rent would be, then adding back in the value of the trailer to get the purchase price. That is just not how i have experienced other people valuaute a small park. Ask Eddie_MI down the board how he lauates a park with rental homes. He just said in his last post he does it based on the revenue it brings in, not what it owuld be with lot rent and the home value added in.
Sorry to be snippity if I was, just trying to show my side of the story.
Ryan
Re: I hate to burst someones bubble…but - Posted by Ryan_MO
Posted by Ryan_MO on July 18, 2003 at 17:45:05:
yes that is correct. He said that I should come back to him around christmas or so and they would refi based on an appraisal at that time.
Ryan