I hate to burst someones bubble....but - Posted by Eddie-MI

import · July 19, 2003, 7:17am

Maybe I Need To Move - Posted by Tim

Posted by Tim on July 19, 2003 at 07:17:14:

I will admit that the numbers(as you present them here) work, but in my area there are two problems with them. First of all, my banker has really been screwing me, because there is no way in he** she would give me an investment loan at 4.4% with the rate guaranteed for 20 years. You can’t get that rate(fixed) here for your primary residence. Secondly, 2bd/2ba homes here rent in the $350-450 range, trailers run at the bottom of that range & the local mobile home dealers will put just about anyone who can fog a mirror into a land/home package for less than $375/month. More power to you if you can get this to work, you are way ahead of me.

import · July 17, 2003, 11:12pm

Re: Excuse Me! ! ! ! ! - Posted by scott

Posted by scott on July 17, 2003 at 23:12:16:

I know of NO INVESTOR who would pay $240,000 for a park of only 7 sites. You say the park is in the country. That is also a draw back. A seven site park in the city, with city utilities, paved roads, off street parking would only be worth at most $84,000. Even with rentals. Hey, I have a 110 site park, will you pay me $3,771,428 for it. NO you would not.

Good luck,

Scott

import · July 17, 2003, 4:26pm

Re: Asking, “What’s it worth to me?” - Posted by Philip

Posted by Philip on July 17, 2003 at 16:26:32:

You have been consistent on this point Tony. I think your posts have led me in that direction. I might make 20x dollars if I wait for the perfect deal…but with the time value of money, I might go for 14x sooner and keep money moving.
The more you do, the more you can do in the future, and it seems all deals have to be decided deal by deal.

That is why I am going to re-develop these 4 acres I bought, even though it is more trouble…I bought the land “dirt” cheap…sorry…that was weak.

I have the first 2 mobiles ready to move onto the land as soon as the survey seperates the plots, and people scheduled to do much of the work.

So, even though I am not buying an income stream I will create one fairly quickly. Plus, after the first of 4 sites, I am going to rent the dirt…a very attractive thing to me.

The man who bid against me owns 101 mobile homes, that he is selling by lease/buy…and he bid a little lower, because TO HIM the property wasn’t worth quite as much because he had his hands full.

It is a subjective thing.

Philip

import · July 17, 2003, 3:05pm

Re: Its me, Its me - Posted by Tony-VA/NC

Posted by Tony-VA/NC on July 17, 2003 at 15:05:37:

Ryan, I am heading out the door and have not yet read your success story, nor do I have time to crunch the numbers but I from what I read here, I gathered this.

There are a variety of ways to evaluate parks. Many profess you should never include rental income from the homes themselves. Privately they have stated they will simply give the home a figure (higher than a lonnie deal number because the home is already set up) and add it to the price.

CAP rates are used by bankers and we need to play to that but to me the CAP rate is too elusive, too easily manipulated.

For small parks, I prefer to look at the bottom line. How much money will I make at month’s end. I build this in as an operating expense (as if I were paying a manager).

I determine what the market rent for the homes/lot would be and shave a hair off so that I can, in theory, rent quicker and give people a reason to stay.

Again, I value the bank balance at month’s end more than I do the bankers CAP rate evaluation.

If I can rent a home through section 8 for a premium, then that is the gravy, but I do not include that premium in the valuation of the park (see above).

If at month’s end your park puts the amount of money into your pocket that makes the investment and your efforts worth it, chances are your price is a good deal (and likely a higher cap rate, lower price, or better terms).

If at month’s end you are happy with the results, you have my respect.

If you overestimated in the pricing, well you have my sympathy. Make the best and move on.

Please take this post as intended and by no means an attack on you or your deal.

Tony

import · July 17, 2003, 2:47pm

Re: Its me, Its me - Posted by ScottS(NC)

Posted by ScottS(NC) on July 17, 2003 at 14:47:46:

Ryan,

I am the one you are probably reffering to about using rental income to value small parks. I have posted on this numerous times. I agree with you on using rental income from mobiles in small parks no diffrently than apartment complexes do all the time heres’s my most recent post on this.

Tom,

I understand your confusion. I am going to assume this park is small you didn’t give the size. These are my feelings on parks of 50 or less spaces.

I know I am going in direct opposition to what most others have and will post on this, but I am doing it with a small park I own and it works for me. Managed properly all the horror stories about maintaing mobile home rentals have not happened. People want apartment complexes where it is much easier for tenants to get on each others nerves yet this is taboo in our world for some reason? I have found good tenants that would much rather have a yard and space of there own versus apartments.

With that said I do value the income stream from the homes as rentals. If I didn’t I would not have been able to buy a park in Asheville NC. Here you won’t find small parks where the land will pay the mortgage not even close. Without counting the income stream from the home you will be on the sidelines forever.

I would ask anyone to explain to me why an apartment can count the income stream it generates but not a mobile home?

I can fix a mobile cheaper than you can fix an apartment. I can allow pets without the “common lawn” problems of an apartment. I can manage tenants and allow only good prospects in like an apartment. I rarely have less than 10-20 calls the first day my adds for mobile rentals hit the papers. I can section 8 mobiles and make big bucks like apartments if I choose.

I am only implying this for small owner managed parks that I can take care of myself. I do agree that in larger parks this can make them quite the eye sore.

Tom I would figure out what you need the park to pay you then figure that as an expense add it to all the other expenses. Figure debt service do your due diligence this is extremely important. After all expenses are listed including debt service and your pay see if the park can support this number. If not adjust your debt service payments until it works. This payment will reflect the price you are willing to pay for this SMALL park. I would’nt use this system on a lare park but it has worked for a couple here in Asheville. HTH Take Care ScottS(NC)

Ryan, I do have a concerns with the figures on your first park. Based on your numbers you paid slightly under a 10% cap. This is barely break even if you finance most or all of it. Unless you got some great terms and owner financing. If you paid a large chunk of cash down then I can see more room for a positive cashflow but then you have to ask how much could that money have made spread out in higher cap deals? I am not in any way trying to attack your deal I congratulate you on it. I just want Newbies to understand in most cases 10% cap and lower are danger signs. Take Care ScottS(NC)

import · July 17, 2003, 1:51pm

Re: Its me, Its me - Posted by T

Posted by T on July 17, 2003 at 13:51:42:

Eddie is the one questioning your numbers…

import · July 17, 2003, 3:18pm

Re: Its me, Its me - Posted by Ryan_MO

Posted by Ryan_MO on July 17, 2003 at 15:18:28:

Thank you very much Tony. In no way is it taken as an attack. It was actually very constructive though one thing caught my attention majorly.

You mentioned section 8 being gravy bought not counting that premium towards valuation Why is that? Doesnt income count as income, no matter if its a premium? Plus the section 8 income is much more secure than tenant paid income.

Thanks for your input Tony.

Ryan

import · July 17, 2003, 3:11pm

Re: Its me, Its me - Posted by Ryan_MO

Posted by Ryan_MO on July 17, 2003 at 15:11:08:

Thanks for the great response. I dont think you are attacking my deal in any way. I agree with you on how to value a smaller park differently from a larger park, it makes much sense.

Now ont eh point of the numbers for the first park, how do you come up with the 10% cap? Based on current income, $1550/month, low expenses of about $200/month currently, thats $1350/month or $162,000 at 10% Cap, $100,000 more than we paid. And with 2 more vacancies to fill, thats just potentially added value. Just asking for a clarification. Thanks.

Ryan

import · July 17, 2003, 3:02pm

Stupid me - Posted by Ryan_MO

Posted by Ryan_MO on July 17, 2003 at 15:02:24:

Sorry bout that. I completely missed that fact. I was more stuck on how the park was valued rather than the numbers part so I missed who wrote the original post. My apologies.

Ryan

import · July 17, 2003, 3:27pm

Re: Its me, Its me - Posted by Tony-VA/NC

Posted by Tony-VA/NC on July 17, 2003 at 15:27:47:

I view section 8 as gravy when it is above the true market rate for that home. I don’t wish to inflate the prices when I am buying the park. That current tenant may qualify for that amount but the home, to me (on the buy side) is still only worth a little less than the market rent.

If I can rent it for more, than this premium goes directly to the bottom line (my pocket). But if I have to rent it otherwise and can only get market rates, then I overpayed. Make sense?

In essence I don’t necessarily want to be reliant upon any one agency in order to support my purchase price. Section 8 can be great but many investors have had abrupt changes, not for the better, when new, local agency heads took over who were not easy to deal with.

I want the freedom to create my profit, not have to bow to support it.

Tony

import · July 18, 2003, 7:46am

Re: Its me, Its me - Posted by ScottS(NC)

Posted by ScottS(NC) on July 18, 2003 at 07:46:22:

Ryan,

I totally misread your first post I thought you purchased for $240k. Thats what I based the under 10% cap rate on. I see now that you got a sweet deal. I would buy these numbers provided everything checked out! Don’t sweat the negativity some folks just feel better when they can be negative. Good Deal, keep truckin! Take Care ScottS(NC)