# should I buy this park? - Posted by thoughtgang

Posted by Greg on January 08, 2004 at 16:00:59:

I went to school for finance, so I think of everything in terms of cash flow.
You need to know:
*how much you will take in
*how much you will pay out

You need to figure out what fair market rent for the house is to know what the park really ‘earns’.
Then figure out what ALL of the expenses are (utilities, taxes, maintenance, etc.)

You may want to find a retired couple to live in the house in exchange for running the park for you.

should I buy this park? - Posted by thoughtgang

Posted by thoughtgang on January 06, 2004 at 19:17:31:

My father in law wants to sell his park to me…he wants 400,000 interest free at 20,000 a year until its paid off. comes with a main (modular) house, 21 filled spaces, and about 6 acres. right now he gets about 160 a space but I think 200 is fmv. the area is actually booming in that right next door to the park is a new development with \$250+ homes (in rural ohio). does this sound like a good deal?

Re: should I buy this park? - Posted by thoughtgang

Posted by thoughtgang on April 03, 2006 at 13:05:14:

decision time on this park is coming up–here’s the latest…

based on sale prices of parks in the area, the fmv is approx. 10k per pad. the house is appraised at 100,000.
The park is down to 20 spots-the rents are still set at 160/mo.
I will obtain the expenses for the past 2 years next week.
Anyone have a recommendation on how to structure this deal as a win/win?

Re: should I buy this park? - Posted by The55+GuyFromAZ

Posted by The55+GuyFromAZ on January 07, 2004 at 24:46:53:

160/mo x 21/spaces = 3,360/mo x 12/mo = 40,320/yr

40,320/yr - 20,000/debt = 20,320 / 12 = 1,693.33/mo. - less expenses (if any).

400,000 / 20,000 = 20yrs to pay it off.

In short… you do all the work for 20 years, and get half the profits… sort of.

Re: should I buy this park? - Posted by ray @lcorn

Posted by ray @lcorn on January 06, 2004 at 20:00:01:

Sounds like your father in law has your best interests at heart… no money down? No interest? About \$6,208 per month positive cash flow after debt? [21 x 160x12x .65 = \$26,208, minus 20,000DS = \$6208] What’s not to like?

Not to be indelicate, but there is one more question that would have to be asked given the circumstances… how strong is your marriage? Be a shame to get it all spiffed up and lose it in a divorce… might want to think about doing some preventive legalese…

ray

Re: should I buy this park? - Posted by thoughtgang

Posted by thoughtgang on January 07, 2004 at 08:31:07:

If I could bump to lots up to \$200 a month over time it might be more appealing. However, the area seems to be really growing so I don’t know if I can pass a no interest deal up…

Forgive me Oh Great One but…=) - Posted by JoeS (FL)

Posted by JoeS (FL) on January 06, 2004 at 20:12:19:

The cash flow is only ~500.00 per month. Unless of course I’m missing something here.

Best Regards,
JoeS (FL)

Re: should I buy this park? - Posted by thoughtgang

Posted by thoughtgang on January 06, 2004 at 20:02:10:

marriage is very good, plus, I’m an attorney!

Re: should I buy this park? - Posted by The55+GuyFromAZ

Posted by The55+GuyFromAZ on January 07, 2004 at 11:41:21:

“I don’t know if I can pass a no interest deal up…”

The truth of the matter is that -IF- he did charge you interest, you wouldn’t pocket a dime.

400,000 at 6% for 240/mo = 2,865.72/mo or -1,172.39 (out of your pocket) on the current numbers

Don’t fool yourself… the only “best interests” he’s looking after… are his own.

For my money, it’s either “same deal, half the price” (\$200,000 at \$10,000/yr) or it’s no deal.

Ahhh grasshopper… - Posted by ray @lcorn

Posted by ray @lcorn on January 07, 2004 at 08:50:35:

Joe,

I was using annual numbers…

ray

Re: should I buy this park? - Posted by ray @lcorn

Posted by ray @lcorn on January 07, 2004 at 11:39:50:

Congratulations on both, but make sure the paperwork is complete anyway!

ray

Re: should I buy this park? - Posted by thoughtgang

Posted by thoughtgang on January 07, 2004 at 13:52:56:

I guess i have a problem with your logic…the tax value of the main house is \$135,000 alone.

Re: Ahhh grasshopper… - Posted by thoughtgang

Posted by thoughtgang on January 07, 2004 at 09:00:26:

is this too good to pass up? I figure since it includes a main house I would live there which would obviously replace my current housing costs. after 20 years of paying 20,000 a year (regardless of lot rent increases) I would own it all. My main worries have to do with the current tenants disdain (of course) for lot rent increases and any possible zoning issues in the future…

Re: should I buy this park? - Posted by JJJ

Posted by JJJ on January 12, 2004 at 22:53:55:

Greetings,

You may be better off paying interest. If the 20K/year is recast as prin. and int. the purchase price would be less. The cash flow to dear ole dad would be the same, so he shouldn’t care. But if you decide to sell after 5 years, you’re better off paying off the remaining balance on a 300K orig. bal. loan than a 400K orig. bal. loan.

Jeffrey

Re: should I buy this park? - Posted by Tony-VA/NC

Posted by Tony-VA/NC on January 07, 2004 at 18:18:25:

The \$135k for the home provides you NO income. Yes, it reduces your current housing expenses. The house, unrented, is not a cashflow investment. Be careful not to value it as such.
One way to value the home is to ask yourself if you would buy it and live in it in the park if you were not buying the park? If you answered yes, what would you pay for it from that point of view?

Chuck is right, the allure of the “No interest” is a bit of a fallacy. Father in law is getting what he wants regardless if it is called principle or interest. He is doing exactly what you should do, protect your interest in the deal.

If there is sufficient money on the table from the park, then look into it. Take out the home and view that park from that standard. Again, I know you are thinking, well…I am saving my housing costs. But don’t remember a small park like this will require you to either be hands on or pay for someone else to be. Chances are you will fall into the need to due many things yourself. Housing cost alone certainly is not likely to reasonable compensation for this effort.

Mix use properties such as small parks that include a stick built home are a bit messy to value. The house is often viewed by the seller as it were a stand alone home valued at (\$135k in your example) but as stated, it does not provide an income stream that I think you would pay \$135k for.

Personally I would seriously look into renting the home and living elsewhere. But may be just me.

Best wishes to you,

Tony

Re: should I buy this park? - Posted by The55+GuyFromAZ

Posted by The55+GuyFromAZ on January 07, 2004 at 14:42:37:

…“the tax value of the main house is \$135,000 alone”…

Make no mistake… your not getting anything for free here… he’s just making his liabilities, yours… at 50% of the profits… all future tax bills, park expenses (water/sewer/whatever), expansion costs, etc… come out of what he’s letting you keep… while you take 100% of the risk and do 100% of the work.

Re: Ahhh grasshopper… - Posted by ray @lcorn

Posted by ray @lcorn on January 07, 2004 at 11:37:35:

I like the sound of the deal. Obviously I’m not on the ground and can’t say definitively that it is “too good to pass up”. All real estate has risk, and I am ever conscious of trying to identify the sources of risk in a particular property.

As to the tenant’s complaining about rent increases, yes, they will complain. But most will do the math between a \$15-\$20 rent increase and the cost of moving, and stay. I wouldn’t try to bump the rent to market all at once… that is too big of a shock to their budget. My usual method is to do it in two stages a year apart, and try to make a show of some improvements in the meantime. Depending on the circumstances, sometimes that just means a clean-up… but I’ve also repaved streets, put in new trash facilites or other types of things that make the community cleaner and better to live in. Tenants, especially MHP tenants, respond to that.

As for zoning, you should determine the current status of the park in regards to current zoning standards and the ability to replace units when needed.

For more on both of these issues, see this post…
http://www.creonline.com/mobilehomes/wwwboard4/messages/34871.html

ray

Re: should I buy this park? - Posted by Bystander

Posted by Bystander on January 19, 2004 at 01:17:01:

What about tax loss by not claiming the int.?

Re: should I buy this park? - Posted by Eddie-Mi

Posted by Eddie-Mi on January 07, 2004 at 16:37:29:

He is basically paying 215,000 for this park.

215000@ 7% for 20 years is a monthly payment of 1667.

400000 @ 0% for 20 years is a monthly payment of 1667.

I would start writing up the paperwork. Maybe get him to take less than 20,000 a year.

Re: should I buy this park? - Posted by joe

Posted by joe on January 09, 2004 at 13:38:09:

Wouldn’t the \$400,000 sale price help significanly with capital gains taxes when the park is sold compared to a \$215,000 purchase price?