Posted by PeteH(NYC) on February 19, 2000 at 20:35:19:
Even assuming that the expenses are accurate, the price is way, way too high: his (claimed) net operating income, $16,370, divided by $249K equals a return of only 6.57% on your investment. You could get that much for a savings bond and never have to hear from a tenant. For a park this small, you should be receiving AT LEAST 12%, and more likely 15-18%, on your investment. Which means that first you verify, verify, verify the expenses (they’re probably a lot higher), and then take the net income and divide by .12 (or .15). If $16,370 is a realistic figure, you want to be paying between $109K (15%) and $136K (12%) for that property.
Another possible approach: the guy is probably used to earning $1200/mo. from this park. Why not master lease the park for his $1200/mo with an option to buy at, let’s say, $125K. Selling point for him is, he collects the same income he’s been collecting, with NO MORE EFFORT. (Can you get him to extend the option for five years? Better, can you get him to credit 50% of your rent toward the purchase price? That would leave you a balance to pay in five years of only $89K.) Then you see about selling the park-owned homes to the owners (this part might be tricky since you won’t actually hold title for five more years), and get all the vacant pads poured & occupied, and get the rents up to what the market will bear. I’m a little tired at this point to actually run through all the numbers, but if the seller can be made to realize a more real-world price range, there may be the possibility to bargain here.