MH park...need advice... - Posted by Fran

Posted by ray@lcorn on March 10, 2000 at 17:43:18:

…but you knew that, didn’t you!

I would not trust the numbers furnished by the agent unless they were deemed actual operating results by the seller. Then I would condition due diligence to the corraboration of the income and expense statements with bank deposits and tax returns.

You have to know the market dynamics in order to reasonably estimate the fill time on the new spaces. That in turn will determine your forward cash flow, which determines what is available for debt service, which brings you back to the question of how much of the sales price MUST be cash.

Did, dig and dig some more!

Good luck,

ray

MH park…need advice… - Posted by Fran

Posted by Fran on March 09, 2000 at 16:52:59:

OK…here’s the skinny on a MH park I found…

  • asking price $850K
  • 25 total acres
  • 65 current sites (9 acres)
  • 60 potential sites (8 acres) (plans have been drawn, and utilities have been run to 20 of the “potential” sites)
  • additional land (8 acres)
  • NO ZONING
  • public gas, elec, sewer
  • well water (may be a problem if we expand)
  • Lot rent ($150/mo)
  • taxes :$2725 yr.
  • 4 homes being “Lonnied” by the owners

TOATL INCOME (yearly): $119,340
(based on last years income w/ $150 per mo. rent)
OPERATING EXPENSES : $ 37,665
NOI : $ 81,675

…minus of course debt services, taxes, etc.

Owners retireing moving to AZ…owner VERY willing to carry back some financing.

Anybody have any sugestions. With some expansion 20-40, or even 60 sites, plus 9 more acres to build on, it seems like a winner.

My biggest problems are down payment, and/or credit (the two big ones, huh??)…I was considering talking to them about a master lease, but I thought I’d consult the experts first…

Thanks for your time…

Fran

Re: MH park…need advice… - Posted by ray@lcorn

Posted by ray@lcorn on March 10, 2000 at 09:49:53:

Fran,

I’m not quite clear on a few things…

  1. How many spaces are currently occupied?

  2. Is the income from the “Lonnie” deals included in the revenue?

  3. Are the income and expense numbers actual or estimates?

  4. Are property taxes included in the $37,665 of expenses?

  5. Do you know how much cash the seller’s HAVE to have, and how much they will carry?

  6. Are you familiar with the market? How many spaces are in the market, and what is the market occupancy? What is the population trend in the area? Is the area growth made up of predominantly retirees or working families?

You’re going to have to value this as four elements:

  1. The existing park (value on cash flow)
  2. The mobile home paper (value on cash-out discount)
  3. The partially developed parcel (comps & cost)
  4. The undeveloped parcel (comps)

The absence of zoning is actually a negative because there is no barrier to entry for new competing parks.

I would also want to know how motivated the seller is. How much is owed, to whom, and how soon the debt is due.

I guess you realize that it won’t cash flow at that price with no money down, so the price must either come down, or you must structure the deal to cash flow, or plan to cover the operating expenses and the costs of development for expansion from outside sources. (yuck!) One option may be to split the deal into three parcels, with interest-only, cash flow mortgages on the two development parcels. Interest payments could be made as the cash flow is available for a three to five year build-up period. However my guess is that there will be some amount of cash up front required to accomodate the seller’s retirement. Depending on the circumstances, the Lonnie deals may be a source of cash if you can get past the market issues.

A master lease may work if you can show a reasonable exit strategy. In other words, show how and when the seller’s could expect to be taken out of the deal.

Many questions I know, but the devil, and the profit, is in the details.

ray

Re: MH park…need advice… - Posted by Fran

Posted by Fran on March 10, 2000 at 14:31:33:

Thanks for your comments Ray…I’d really enjoy the response.

>> 1) How many spaces are currently occupied?

All 65!! Beleive it or not. They’re on a month to month basis so no lease, but, they just filled the 65th lot last month or so…

>> 2) Is the income from the “Lonnie” deals included in the revenue?

No. No financing income in the deal.

>> 3) Are the income and expense numbers actual or estimates?

The income/expense is based on last years’ (1999) records. These are numbers from the agent, so they may not be completely accurate.

>> 4) Are property taxes included in the $37,665 of expenses?

Yes.

>> 5) Do you know how much cash the seller’s HAVE to have, and how much they will carry?

No. I can hammer that out soon enough. I know, I know…I should know this…

>> 6) Are you familiar with the market? How many spaces are in the market, and what is the market occupancy? What is the population trend in the area? Is the area growth made up of predominantly retirees or working families?

Familiar with the market, yes. It is a small borough outside a small city. One of those cities where there is a lot of old money, but lots of factories/mills (tool and die and plastics are HUGE here), with lots of working families.

As far as competeing parks, number of lots within XX miles, I don’t.

You’re going to have to value this as four elements:

Yeah, you said everything I thought you would say. I thought maybe interest only for a few years, that would give me cash flow…even more as I fill the expansion with financed homes.

My problem is getting the big downpayment…Hmmmm…I wonder how much they’ll take…only one way to find out, huh??

Anything else you see from these answers??

Thanks Ray.

Fran