Posted by PeteH(NYC) on December 02, 1999 at 21:41:24:
Ray Alcorn is your man for jumbo facts and cogent analysis, but here’s my quick take (based more on reading than hard experience):
Figuring 30% expenses on that $350K gross, their asking price of $1.75mil represents a 14% cap rate – not wholly unreasonable, in my mind, especially since you’re buying upside in the form of ~103 vacant lots you can fill (47% of 219). Their price, from what info you’ve given, is also calculated only on the currently occupied lots: a good thing. (And if my calculator’s right, lot rent there is runnning about $250/mo. Yes?)
Questions to ask: does their gross income figure include laundry and store revenues? Those you want to separate out and capitalize separately. Exactly what expenses are involved? How much deferred maintenance, and what kind of costs are involved? (Is a sewer line getting ready to go south? Does the electrical need to be upgraded anytime soon?) Are there junker trailers that just need to be hauled away, at your expense?
Lastly, I’m not entirely clear on what “180 park-owned homes, all Lonnie deals” means: are 180 families renting park-owned homes? Where exactly are the Lonnie deals? If you’ve got 180 renters with no ownership interest, it’s going to be a big job converting them to homeowners – whole different psychology, and homeowners is who you want to be collecting lot rent from. On the other hand, 180 Lonnie deals could be HUGELY, and very sweetly, lucrative.
Keep investigating; bring us more details. Good luck.
Here’s the deal: I was looking for some Lonnie deals to buy, but instead I found a Park. I need a little help on this now.
The Details:
219 Lots
180 Park owned homes, 5 private homes, the remaining lots vacant. All Lonnie deals. Older homes though, avg year '72-73
24 acres
Occupancy: 53%
All city utilities
Plus a store, luandry, and office in a seperate building.
Est Rev= $350K gross
Asking Price= $1.75 million.
I need a little help with this one. I want to sell the homes (Lonnie Deals) and keep the land. Looking for help from the experts and any other advice.
Posted by ray@lcorn on December 03, 1999 at 24:38:13:
tim,
I agree with Pete in that you are going to have to get the actual amount and sources of income before doing anything. You will not be able to value the property on the rental income from the homes as you would with space income because of the relative usable life left in the homes. In addition, the expenses on this property are going to be gargantuan, due to the owned homes. Nothing I know can suck more money with less to show for it than a bunch of used mobile homes. Take it from a man who has owned hundreds of them… all at the same time!
You may have heard me talk about a park we sold a couple of years ago… it was 264 spaces with 76 owned homes. It was in a college town, and the owned homes made great rental housing for students for the first ten or so years of the life of the homes, but the last fifteen (the bulk of them were '74 models) they became the bottom of the barrel for housing choices in that town. One prospective buyer took a look at the park and said it was a horizontal apartment building! He didn’t say they were ugly too, but he was just too kind. We didn’t even want to sell the units to the tenants ala owner financing because they were dragging the whole park down… as long as they were there, any efforts to improve the park were fruitless. I’m afraid you may be looking at a similar situation.
Assuming the $350T gross, and 50% expenses, then the NOI is ~$175, which leads to a 10% cap on a very edgy property. To put that in perspective, I have seen commercial buildings with a credit tenant, on a triple net lease sell for a ten cap. And in those deals the only labor involved is depositing the check every month! From the info given, I would hit this property as worth less than a million, but I wouldn’t know how much less without some more info.
Lastly, the density on this park is too much. 219 lots on 24 acres is over nine per acre. Ideally six or seven per acre is the max you can comfortably design for, and with the size of today’s homes, five or six per acre is not unheard of. My guess is that the lots are small and would not accomodate the new, larger homes without combining some lots, which will net a smaller size than now present.
Sorry to shoot so many holes in one deal, but if I were to pick all the wrong things to have in a property, this one would be case study 1-A. (smile)