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.