Re: Mobile home park opportunity? - Posted by Ernest Tew
Posted by Ernest Tew on April 09, 2002 at 05:19:58:
As Jon pointed out, the park is overpriced at $26,667 per lot (including one for the apartment). However, we should divide the net operating income (gross income less operating expenses) by the price or value to arrive at the cap rate. It would be incorrect to divide the price by the cash flow.
We have owned and operated nine parks, including an 80 space park in south Florida that rents for $275 per month. We have found that operating expenses average about 40%. Consequently, I question the approximate 27% mentioned in your post.
Owners who manage and maintain their own parks sometimes forget about the value of their time and efforts when attempting to sell. I doubt that they will agree to continue to manage and maintain the property without pay after it is sold?
Whether you will manage and maintain the property yourself or hire someone else to do it, the value of those services should be included as an expense when estimating income and value. That is, you should be paid for services and still have a reasonable return on the money you invest.
Finally, I wouldn’t count on appreciation when paying top dollar for a property.
If the owners are motivated, you should be able to negotiate a better price or better terms. If they are “hung up” on price, you might agree and pay them the same down payment; provided they will accept an interest-free mortgage. Or, you might negotiate a better price by showing them how they can avoid or defer capital gains taxes. For example, enter into a net lease with an option to buy at the same price within five or ten years.