MH park-how do these numbers look? - Posted by Dave(PA)

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.

MH park-how do these numbers look? - Posted by Dave(PA)

Posted by Dave(PA) on February 19, 2000 at 18:40:52:

Hi all,

Have been reading this site for the past couple of weeks and have gotten a weath of information, thanks for everyones time. I hope I can contribute at some future date.

Found a MH park for sale. 12 spaces, 5 with pads and park owned homes on them, rented out for ~300/mo. 1 with a tennant owned home, paying $125/mo in lot rent. One vacant pad. The other 5 lots have utilities, but no pads yet.

Bought, but haven’t received the “lonnie” books yet. Also haven’t been able to talk to the owner yet, only the RE agent. Asking price is $249,000, reduced from $279,000. Spec sheet says $20,400 annual income and $4,030 expenses.

I have gathered from the lonnie articles, that owning the lots and selling the homes would be a good approach. Lots are small, cars must park between the MH’s. Single road in and dead ends. Other parks are charging in the $200 range for lot rent.

I believe the park is owned outright, so owner may be able to hold some financing. Will find out when I talk to him. I know all the details aren’t here, but any thoughts based on what I have at this point from the MH gurus out there?

Thanks

Dave

Re: MH park-how do these numbers look? - Posted by JohnBoy

Posted by JohnBoy on February 20, 2000 at 20:24:47:

Dave,

You have to separate the dirt from the park owned homes first to get a more accurate value on the park.

He has 5 lots with park owned homes and 1 lot rented at $125 per month. That tells us he has a 50% vacancy factor and is collecting $750 a month in lot rents. ($125 x 6 = $750)

That’s a current annual income of $9,000 in lot rents. The potential income would be $18k in annual lot rents with 100% occupancy.

I would figure in a minimum of 40% for expenses which would leave a current NOI of $5,400 and a potential NOI of $10,800.

On a small park like this with no room to expand and move in larger homes I would expect a minimum return of 14% at least. That places a current value on the park of $40k and $80k at 100% occupancy based on $125 per month lot rents.

The 5 homes that are park owned would need to be evaluated as if you were going to purchase them as a Lonnie deal. How much would you pay for these homes to out right buy them as a Lonnie deal? $2500 each? At $2500 each that would add a value of $12,500 to the purchase price.

That’s $52,500 based on current occupancy and $92,500 based on 100% occupancy. Now we know the vacant lots do have some value to them even though they’re vacant, but not as much value as they would have as if they were occupied. So you need to determine the value of the vacant lots and add that value to the $52,500 and that’s what the park is worth with the 5 park owned homes.

My guess would be about 50% of what each lot would be worth if it were rented at the $125 per month.

At $125 per month, that gives a gross annual income of $1500 per lot. Minus 40% expenses, that leaves a NOI of $900 per year, per lot. $900 x 6 lots = $5400 NOI once fully rented.

I would place a value of $20k on the 6 vacant lots, $40k on the occupied lots, and $12,500 for all the park owned homes. That’s a total value of $72,500 “as is”.

The question is, where’s the deal on this? I’m with Pete on this one, the price is WAY, WAY TO HIGH!