Posted by Tim on July 25, 2007 at 09:09:10:
I am assuming this is the park we emailed back & forth about a couple weeks ago…the things that turn up during due diligence!! I would be considering very carefully how this would affect the whole deal. The numbers looked good for you from a cashflow standpoint, but what really made the deal was the potential to resell at a considerable profit in 10-15 years. One of the few things I regret in my REI was buying properties that really cash flowed, but didn’t have much of an increase in value.
I don’t think you will have problems getting the park full before the ethanol plant comes on line. However, if the plant goes online & smells bad enough, your pool of people willing to live there will be smaller. That would have to affect future lot rent increases.
I don’t know how the ethanol plant will affect the future value of the property. There is the possibility it will change the highest & best use to commercial/industrial. Could the area support enough commercial development to use up all the available property? In other words, will the potential commercial property be in short supply? If you are stuck with a residential property in an industrial district you are probably looking at several years of minimal(or no) appreciation. This looks like one of those situations that could go either way.
I guess I would be double checking all my numbers, & asking myself would I be satisfied with the level of cash flow if I knew that my resale value could be very close to my purchase price.