Pricing a small park - Posted by Bradley Hawley

Posted by Phil Pelletier on June 04, 2003 at 17:32:44:

I did notice that some of the issues you raised with my numbers indicated that I may have been HIGH and not LOW. With the exception of the shorter term on commercial property, the opinion I wrote was quite sound financially. You mentioned that the closing costs would probably be lower, the operational costs would probably be lower and the new owner woould walk away from closing with cash from prorated rents, etc. All that is good valid info, but does it negate the fact that my opinion would be to lock that place up and perform some serious due diligence on the numbers? Even if he has to pay 7.5% and amortize the place over 20 years, the cashflow (with your “less than 35% operating expenses” premis) woudl still be good enough to pull the trigger on this place, not counting on the expanded equity potential with improved rents, newer homes, watered grass and new shrubbery.

Would you pay $90,000 for a $2,100 monthly rent roll that may demonstrate an ability to be expanded to $3,000 plus?

Of course you would, almost without regard to the interest rate, the appraisal costs or the closing costs. Just a shot at that equity expansion would give me a major willy to be involved.

You think he wants a partner?

Phil Pelletier

Pricing a small park - Posted by Bradley Hawley

Posted by Bradley Hawley on June 03, 2003 at 19:50:11:

Im thinking of offering this guy 40k bank financed or 50k he finances one way or annother. WHat do you all think. Im not making this offer tomorrow but i am meeting with him friday and am tring to go in as prepaired as i can. Here is what I know about it. Right now i am yet to meet with the owner but he is in a partnership he claims he wants out of. claims he is doing all the work but from what i can see he hasn’t done any. He is asking a purchase price that is almost 3x what he paid for it in August of 02. It is all road enterance with a gravel frontage road. desireable school district, at least as far as alabama goes anyhow
Location- good (within 10 min from downtown)
Size- county says 9 owner says county will allow 14 but it currently has 7 rentable
Owner says its worth 90k County says its worth 22k
Last owner purchassed it for 34.5k from a couple who paid 35.5 for it
Owner told me that only expense has been two newer homes and amounted to 4k
Park is bringing in 2100 a month now with old ratty homes but i feel that provided that the septics are good i can change that to 3500 with an extra 10k investment in some newer homes
Taxes are 175 for last year.

Re: Pricing a small park - Posted by JC

Posted by JC on August 06, 2007 at 12:15:31:

Hi Bradley,

Did you end up buying the park, and if so, how is it going? Thanks

Re: Pricing a small park - Posted by Phil Pelletier

Posted by Phil Pelletier on June 03, 2003 at 23:44:51:

I would LEAP at the chance to pay $90,000 for a $2100 gross monthly paystream, provided most of the cashflow comes from land rental and not home rental. Even figuring a 35% expense ratio (pretty common in MHP), you still have a CAP rate that is a mindblower.

I would ask him to finance you interest free for 24 months while you make payments to him based on a 10 year payoff. Here is what I mean:

Tell him you will pay him $90,000, if he pays for the closing costs (easily $5-7 grand or more depending on the appraisal). Tell him you will pay him $750/month for 24 months ($90,000 over 10 years at zero interest is $750/month), all principle towards the note. After 24 months, you will owe him $80,000. If your plan works out, the place will easily appraise for $250,000, and the bank will loan you the $80,000 you need to cash him out. Your bank’s interest will be in the 6% range for commercial property, but it will ammortize over 30 years, so your Principle and Interest payment will be only $469 per month (plus taxes, insurance, management etc).

The current owner gets what he wants (about $85,000 after paying your closing costs) and you get what you want (access to a park where you can improve the appearance and cashflow and produce some real equity for yourself (well over $150,000 when you are done) as well as a nice cashflow income for the rest of your life.

I would not let this place sit too long befor eat least tieing it up with a $100 bill, while you look at the numbers and the septic etc…

Good luck and nice find.

Phil Pelletier

PS- Notice my scenerio seemed to be a win/win and you put ZERO down. It’s all about creativity. There are a ton of ways to make this work. Even if he insists on interest to carry you for 24 months, you can just kick out the ammortization period to keep your payment to a minimum.

Re: Pricing a small park - Posted by Dave Fl.

Posted by Dave Fl. on June 04, 2003 at 19:46:23:

I cannot believe anyone smart enough to become a park owner would be dumb enough to allow anybody to tie it up for a measly $100.00 bill. To in effect, take it off the market for even a month, with only a 100 dollar bill. That must have been a “figure of speech”, right?

No Suprise, But I Disagree - Posted by Tony-VA/NC

Posted by Tony-VA/NC on June 04, 2003 at 12:26:56:


Once again I disagree with your figures and terms on the purchase of a small mobile home park, but as I recall you have not bought one so you can only guess.

Commercial Loans are NOT Typically ammortized over 30 years. They are more often to be 15 or 20 year ammortizations with 5 or 10 year balloons. Even on a refi, though from time to time, a new, local bank that is growing may consider a 30 year note I still believe this to be unusual and not “typical”. This is based upon my meeting with many banks (both local and national) and talking with investors across the country. Again, it may be a local abheration you are referring to but that is akin to the dealers and brokers quoting price leading rates (and payments) to get people in the door, all the while knowing very, very few people will obtain such a rate. It is a Best Case scenario.

A 6% interest rate for a commercial loan, especially a mobile home park seems a bit low, even in light of the lower market rates, but again, there may be a small bank or Broker in your area that Says they will go such a rate. Credit, seasoning, performance, experience etc. will also determine this rate. A Mortgage Brokers may quote you such a low rate but few seem to be able to close a mobile home park at such a rate. Again, it is a price leader approach to get you in the door.

Closing costs on a small park are not going to run $7k even with an appraisal. Chances are the costs would be half of that. If you are buying with owner financing, then paying a couple of grand for an appraisal is not likely to be necessary. The buyer needs to convince themselves of the value of the property, not allow some appraiser to try. Banks rely upon appraisers, we don’t.

Without such an expensive appraisal, the closings costs will likely be less than a grand.

You also left out a very important fact when buying a commercial property. You will be walking away from closing with cash from pro-rated rents (best to buy in the beginning of the month) as well as Security Deposits (to be placed into an Escrow account).

I have also noticed that you tend to quote the “norm” for percentage figures but I suggest that since you don’t own or operate a small park, your figures may be inaccurate and are likely taken from courses such as Ernest and Ray’s material that are primarily based upon the purchase of large park that requires a different expense strategy typically involving employees of some degree.

I suggest that the buyer of a small park use real expense figures and not the “typical” figures from stated percentages. It is not difficult to get a handle on the true numbers in a small park. A few phone calls to local utilities, taxing authorities etc. provides the lion share of the expense due diligence.

I think you will find that 35% is too high an expense figure, unless you are taking into account a management salary. However, I would still agrue that real figures are more relevant and important.

We may both be wrong and as you say, everyone is entitled to their opinion. I just wonder from time to time what people are basing these opinions on.