Posted by Dave(WNC) on February 24, 2002 at 20:44:31:
Excellent post! I forgot to include in the previous post that I would tap into an LOC in addition to the cash but I suppose it’s moot at this point.
I have adjusted my spreadsheet according to your (and others) recommendations by backing out the trailers and essentially buying those separately.
I have a handful of SFHs and have done a couple of Lonnie deals but I am not accustomed to valuing MHPs. Here’s what I’ve come up with thus far so please feel free to correct any errors from these numbers so that I can correctly value future properties.
The lot rent on the empty spaces which I forgot to state is $185 therefore:
Gross Annual Rents - $35,520 (185 x 16 x 12)
Less Vacancy - $1,776 (Figured at 5% x Gross which is very conservative for this park)
Total Gross Income - $33,744
Total Annual Expenses - $8,611 with self-maintenance (Well documented expenses)
Net Operating Income (Pre-Tax) - $25,133
Figuring a 14% cap rate, value is $135,500.
Ten SW Mobiles plus one DW age range between 6 - 19 years old valued at an average of $4,000 apiece for a total of $44,000 (I have all the details in writing about year, make, model but will purposely omit here for brevity’s sake).
Other property not valued in include mowers, tools, sheds, etc.
This is an immaculately organized and clean turn-key business. (Trust me on that one although I realize that it’s difficult to quantify a price on that sort of thing. I mean, you could eat off of the floor of the well house!). Elderly husband recently died and his widow would like to sell everything soon and move on. She may not have much time to carry any paper. They have lived onsite for 19 years. Husband ran the business completely and wife can not and does not want to handle the affairs of the park alone.
Therefore park valued at $179,500.
Proposed deal structure:
$125,650 loan 70% LTV - 7.5% @ 20 with 5 year balloon leaving a $12,147 annual debt service.
30% cash down from buyer or $53,850.
Annual Net Operating Income after Debt Service (Pre-Tax) $12,986.27
Will the bank insist I buy the trailers with cash, THEN put 30% down on the park:
Bank finance 70%LTV of $135,500 or $94,850
Buyer puts $84,650 cash down ($40,650 down plus $44,000 for the trailers)
So the income from the rental houses is PURE gravy as far as the bank is concerned?!? That’s a heckuvalotta gravy!
Ed, am I getting warmer?
P.S. Of course never mind the fact that the seller will have to be hoisted from the floor after I offered her 37.8% of the asking price on her late husband’s baby. Apparently $475,000 was PFTA (Plucked From Thin Air) and did not consider bank financing as a factor. Unless a buyer just hit the lottery and it’s burning holes in his pocket, I will have to wait this one out. I would like to stay in touch with them just in case the reality fairy pays them a visit sometime. Somebody’s gonna buy it… How much is anyone’s guess.