Posted by ray@lcorn on January 16, 2000 at 23:58:35:
Doug,
Until I read your post, I had understood the first one to be a 36 space park with 30 rented. I completely missed the rentals. I’m glad you posted your assumption. It made me doublecheck mine.
I agree with you also on the deal. If this is 36 spaces with 30 owned homes, the price is way too high.
Good eye, and my apologies to Jim.
ray
Mobile Home Park Deal - Posted by Jim Holmes
Posted by Jim Holmes on January 15, 2000 at 24:36:32:
I am analyzing a 36 space mobile home park that has 30 rented free and clear units, a three bedroom house and a laundry facility. Asking price is $750,000. NOI is 109,000. I am putting a 50% first and the owner will carry back 50% in the form of $300,000. cash and a house I will exchange for $75,000. Owner will carry at 8.5% for 15 yr. 1st will carry at 9.25% for 25 yr with a 10 year call.
I have a couple of duplexes and a number of single-family homes, but haven’t done a deal this size before. I believe after carrying debt service, I will cashflow about $3000.
Please give me some feedback on this if it appears to be a good deal and also let me know what due diligence I should perform as a newbie.
P.S. tomorrow I’m doing a unit by unit inspection w/the seller’s realtor.
Thanks in advance,
Jim from Idaho
Re: Mobile Home Park Deal - Posted by ray@lcorn
Posted by ray@lcorn on January 17, 2000 at 24:03:09:
Jim,
As you can see below, we may need some clarification on your deal. My original post was wrong. With that many rental homes you’ve got homework to do on valuation, and your deal structure may need another look.
Let us know if we have it right.
ray
Re: Mobile Home Park Deal - Posted by DougO(NM)
Posted by DougO(NM) on January 15, 2000 at 13:44:57:
Please look at the deal again. Seperate the homes from the deal, look at what the value would be worth for just the rental income from the site rent, them put a value on each unit, add them up and get a total value. Read http://www.creonline.com/mm-43.html if you haven’t already. If you buy this property based on rental income produced by the mobile homes, you will probably pay too much, (imho)
Doug
Re: Mobile Home Park Deal - Posted by ray@lcorn
Posted by ray@lcorn on January 15, 2000 at 13:43:30:
Jim,
I like your deal. It sounds like you are a good ways down the road toward getting the deal signed up. I won’t offer anything on structure as the one you propose is fine.
The single most important function of due diligence is to document the income. That should go without saying. You’ll need bank statements and tax returns to verify that solidly, but can accept less if it is apparent either by way of estoppel letters from the tenants or an affadavit by the owner that the rent roll is accurate.
On the expense side, I pay particular attention to two items. Utilities are usually the largest expense categories, and of the bundle, water usage is the one that can cost you a fortune if you aren’t careful about examining the records for leaks. Get two years of monthly billing records showing the total usage. I like to put them into a spreadsheet. On the average, a household will use about 5,000 gallons of water per month. When you do the math with the water bills, divide the total usage by the number of occupied units. If it departs widely from an average number, then there are likely leaks in that area. That will also show you seasonal patterns.
The other category is maintenance expense. I want to know what is behind whatever number may be shown. If the expense is low, I want to know why. If it is high, I want to know why also. I want to know what exactly are the recurring maintenance items and what has been extraordinary in the past three years.
Make note of insurance costs, and find out about past claim history. That can give you some insight on what kind of operation you are inheriting.
I just sent JP an article on performing commercial property due diligence that should be posted soon. Keep an eye out for her update.
Good luck!
ray
Re: Mobile Home Park Deal - Posted by DougO(NM)
Posted by DougO(NM) on January 15, 2000 at 17:43:10:
I took 36 “free and clear units” with an NOI of over 100K to mean he has 36 rental mobile homes. If I am wrong, disregard post please !
Doug
Re: Mobile Home Park Deal - Posted by Glenn OH
Posted by Glenn OH on January 16, 2000 at 14:52:13:
In your reference to maintenance expenses, you use the term “low” and “high”. Could you clarify a little further by giving what you consider “normal” for a MHP?
Further, do you know of or can you supply any reference data for typical MHP financial ratios, etc. I am working on a business plan for some financing, and these items would certainly add credibility to the plan.