Posted by DougO_NM on August 24, 2003 at 13:05:12:
At a bare minimum, your investment should be earning you at least 3% over an above your cost of funds. That said, in today’s low interest rate environement, you might do well to get a seller to sell you the property at a cap rate equal to whatever interest rate he’d charge you to finance it, witht the same % down payment. for example would a 10% rate 10 % cap and 10% down work ok? If not, move the numbers around a bit. Using my logic, start from there and ask the seller to help you build in a safety margin for you both. How about an 8% interest rate, a 12% cap rate, and 10% down payment? If set up a spreadsheet and play with the numbers you’ll begin to see how those numbers interact. You’ll also find that you can pay a much higher price for the property if you can get the finance numbers where you want them to be. (By lowering the down paymnet, lowering the interest rate, and lengthing the term) Watch how the variable affect the cash on cash return as well as the cap rate.
As usual, and as almost everyone else, I wanted the best of everything. So I put together (in my mind) the best info on rentals from this website and the best info on MH from this website in my mind. This gave birth to the following questions.
(1) If I were to buy a mobile home park with some money down and a reasonable interest rate, then the ROI would have to be worth my time and effort. Then if I put enough of my own mobile homes in the park and rented some of them out my ROI would go higher up. Again, if I sold some of the mobile homes that I bought as per Lonnie deals, the ROI would go even higher. Add a Laundromat to the park, a mini convinience store, a candy machine, etc. etc., and ROI keeps going up. I realize there are issues that will come i.e. washing machine breaks down in laundormat, renters leave, practice using their chain saw on my mobile home etc? but considering all fair and square, I would think ROI would be higher than just buying a rental and relaxing. Right? Need Expert opinions please.
(2)It would be like a full time job for first few months while everything is being set up and then hopefully the issues that come up are minor enough for a property manager to take care of them. I would move to another deal like this one and do the same for the next ten years (serial entrepreneur ?? or dumb a…?)
(3) All this sounds so amazing and I stumbled on the creonline website and haven?t yet bought any course, just been reading the free stuff ? so excited that I feel like resigning from my job. So, question is : how many months (expense )worth should one have in the bank before starting something like this. I mean, my home mortgage won?t just go away just coz I am starting a business. Nor will the other bills. So, indirectly, how long does it take to see the first dollar of net revenues.
(4) Somewhere I read on this website that cap rates don’t mean much if I were to borrow money for buying the rental income property. So, for the above kind of investment i.e. mobile home park with rentals and all the other good stuff I mentioned, what kind of ROI and / or CAP should one look for?