Please help analyze the deal - Posted by Alex

Real Estate Investing RV Parks
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Posted by Alex on March 24, 2006 at 11:39:34:

Sorry for the late reply. I haven’t checked the board for two days and never got any notification emails about getting your replies. Is it normal?

Anyway, Ray and Walt, thank you very much for your inputs. I did need more opinions about the deal.

Apparently, the owners (partnership) managed the property themselves, couldn’t agree on some management decisions. They have another business; this park is the only residential real estate that they own and they just decided to go out of residential and proceed with the other business. My impression is that the property is undermanaged, which explains the number of other investors in the park as well as vacancies. I’ve managed to find an experienced manager who also owns her own parks and has been in the business for about 25 years. She’s interested in managing the park and confident she could fill the spaces; we haven’t talked about the time line though.

Walt, how did you come up with the $440k figure? Did you not count the rentals?

Alex.

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Please help analyze the deal - Posted by Alex

Posted by Alex on March 22, 2006 at 11:12:55:

Almost two weeks ago I got a contract on a park with the following numbers:

Total lots: 72
Currently rented lots: 47
4 park owned homes are among the 47 lots.
Gross: $87,720
Combined expenses: $22,222
NOI: $65,498
Contract price: $645,000.

After I received the documents I found out that the actual picture is not quite what I thought it was. First, there were not 4, but 13 rentals - 4 owned homes plus homes owned by two other unrelated to each other investors, with one of them living in the park.
Further, based on the current rent roll, there would be $81,480 gross annual, and slightly bigger expenses - $22,730, making NOI $58,749.
My investment criteria is anything above 10% CAP, with a NOI like this, this property is less then 10%, plus there is more risk involved because of the big number of rentals, which I would want to get rid of anyway. I let the broker know that based on the numbers I have now, I would like to have 11% CAP (because of the increased risk), making the sales price of $534,000 and that I agree to add extra for the homes making the final offer about $570,000. The broker gave the numbers to the seller and now we are waiting. Obviously, I don’t expect the seller to be happy, it is a big drop from $645k to $570k, but I think this is reasonable.
What do you think? Am I being too naive? Do you guys think this is a good deal at all?

Appreciate any comments,
Thanks!

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Re: Please help analyze the deal - Posted by Don Dion

Posted by Don Dion on March 24, 2006 at 19:42:06:

It’s been some time since I have been on this channel. I noticed your posting on the MHP your looking at. Ran the numbers and it did cashflow at a pp of $625,000 but when using a national cap rate of 10% on the park it would not have appraised out. Then I took the numbers from that file adjusted the sales price down to a level that could appraise out of $579,500 and did the figures on 80% LTV for a 2yrs program 30yr amort and come up with a 1.3 debt service and a deal that will appraise for the purchase price.

These numbers also include a 4% mgt fee reserves for replacement of capital items. Estimated closing on a deal of this type would be 30 to 45 days. Feel free to drop an email to me and I will send the two underwriting files to you for your review.

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Questions to ask a mobile home seller - Posted by Eli

Posted by Eli on March 24, 2006 at 13:34:06:

There are a LOT of factors that go into evaluating a park. But from what I am seeing the price is too high. I think you are right in going back and re-negotiating the price but I think it probably needs to come down even more. There are dozens of things that could make this a good deal and dozens more that could slash what it is worth in half.

here are some questions I will need to know:

What is the total Number of Lots in the park? (paying tenants)

Total Number of Vacant Lots?

What is the current average lot rental?

How does the average lot rental compare to other parks in the same market?

How Many of spaces are designated RV spaces?

In years, how old would you say the park is?

Are the streets paved?

If so, do they need repairs?

Does each lot have its own paved driveway?

What is the condition of the grounds/common areas?

Is the park on city water?

Is the park on city/county sewer?

How old are the water/sewer lines?

Does each lot have its own water meter?

Do the tenants pay for the water/sewer service?

What % of electrical boxes have been upgrade to 200 amp service?

Do the tenants pay for the electrical service?

Do the tenants pay for the garbage service?

Are there any mobile homes included with the sale of the park?
How many homes in each age category are there?
SW -2000-Current
SW - 1990’s models
SW - 1980’s models
DW - 2000-Current
DW - 1990’s models
DW - 1980’s models
All homes 1976-80
Pre-1976
Total Homes

What is the average age of the mobile homes in the park?

How many park owned homes sit VACANT?

How Many lots are big enough for Doublewides?

What percentage of the spaces could hold a 16X80

Does the park have a separate office on-site?

Is there any undeveloped land that comes with the park?
-If so how many acres?
-what is it worth an acre?

What amenities does the park have?

What is the asking price for the mobile home park?

How did they come up with that price?

Why is the seller selling the property?

Is there a mortgage on the property?

If there is a mortgage, is it assumable?

Will you finance the property?

How much down payment would you want?

What is the Tax Assessed Value?

What is the Actual NOI for last year?

What is the total income from Rental units/mo (hundreds)

Is there any additional income (in hundreds per month)

How far is this from the nearest major airport? (miles)

How far is the park from the nearest Elementry School?

How far is the park from the nearest grocery store?

What would you rate this park on a scale of 1-10?

How many acres of land does the park sit on?

Is there any other structures besides the mobile home park?

  • what is the aproximate value of it

List a breakdown of all expenses:
Property Taxes
Insurance
Utilities (water, electric, gas etc.)
Management
Garbage
Repairs & Maintenance (for park & any equipment)
Contract Work (plumbers, electricians, A/C etc.)
Office Supplies
Parts & Materials (for park & equipment)
Telephone (including yellow page ads)
Other Advertising
Fees, Licenses, Dues & Miscellaneous
Legal & Accounting fees
Total Expenses (if known skip the above and fill THIS in)

With those answeres a real value can be come up with, (I have some softare to do thousands of calculations on this info disecting it and analysing it in every way imaginable) then I make an offer based on what it is really worth. Then if accepted I look at the property, if it passes a visual test and everything else checks out I move forward.

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Re: Please help analyze the deal - Posted by Walt

Posted by Walt on March 22, 2006 at 12:47:27:

Based on income, I get a value around $440K. It looks to me like it is extremely overpriced. Maybe Ray could elaborate on how he calculates value and which numbers are more realistic.

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Re: Please help analyze the deal - Posted by ray@lcorn

Posted by ray@lcorn on March 22, 2006 at 12:07:41:

Alex,

I think you’ve done the right things. Glad you found the “shadow rentals”… that’s one of the quirks in parks to watch out for.

You’ve made your case for the drop in price and the ball is in the seller’s court. I’d wait for the response and go from there.

Question: Why so many vacancies? How long do you think it will take to fill them?

ray