Posted by Mr. H (IN) on July 05, 2007 at 19:12:30:
slaving over that grill would pay off. Thanks Lin
Thoughts & Opinions - small park - Posted by Mr. H (IN)
Posted by Mr. H (IN) on July 03, 2007 at 19:23:30:
I looked at a small park recently and wanted to get some opinions.
17 lots, 15 park owned homes - 2 owner occupied
1 stick built double
All on 1 water meter, city water and sewer
park owned homes are 30 - 40 years old, some are 10’ wides
old electrical, 100
Most park owned homes are rented on a weekly basis for $135, some slightly lower and owner pays water, electrical, and gas. Owner occupied lots pay $250/month each. Half of double rents for $540/month. Seller lives in other half.
Asking price is $459K. Reportedly averages $8K/month income with expenses @ $2500 - $3000.
Seller willing to sell on contract with $100K down. Selling due to age.
He has a contract on it at this time. Buyer has 30 days to close with the purchase price close to asking price. While seller and buyer were negotiating, seller says he countered buyer’s offer with $400K cash but buyer didnâ??t want to go that route.
Some of the upside is:
According to online records, the park is licensed for 19 lots.
Could rent the other side of the double
One of the owner occs is for sale (asking $1700)
Weekly rents could be raised by $10 over the next year or two
Some other interesting information:
This is the second small park with all or most homes park-owned for sale in this area in a month.
Indianapolis (at itâ??s â??business friendlyâ?? best) has decided that the water bills must increase by upwards of 30% for businesses such as laundromats and car washes. I think this will also affect small parks on one meter.
Seller says he bought 4.5 years ago with 5 tenants in place. Rehabbed all of the homes.
With the limited upside, youâ??re basically purchasing present and potential cash flow. What are some thoughts on this and am I missing some other potential upside. Also, not sure what exit strategies would be feasible.
Any thoughts would be greatly appreciated.
Re: Thoughts & Opinions - small park - Posted by Tony Colella
Posted by Tony Colella on July 05, 2007 at 06:41:31:
The weekly rental situation sends red flags up for me. Why did the seller resort to this? Something hidden may lay below the surface here.
What would one of these units rent for monthly?
Compare that to what he gets doing the weekly rental and then compare the usual expenses. For example, if our monthly tenants pay their own electric, gas and perhaps water, the seller had better be getting an huge mark up on the inclusion of these expenses for the weekly rentals.
How does the high turnover affect vacancy rates? Is he only able to fill by going weekly or is he catering to a niche market (some tourist attraction type action)?
In some locations, especially tourists areas, the weekly rental would require a sales tax somewhat like a hotel room is taxed and this may not only cut into profits but require compliance that the seller has not disclosed or complied with themselves.
Just like any park, we need to get to the bottom line, independent verification of income and expenses and from there include our profit as an expense line item (pay yourself first). What’s left over after conservative figuring should be all that you can and will pay in mortgage payments. If that comes in line with the seller’s terms, then move on to the concerns of expansion and exits (before you buy these will need to be decided of course).
Tony
my LOOOOONG random Thoughts & Opinions - Posted by Steve-WA
Posted by Steve-WA on July 03, 2007 at 20:44:16:
first thing I see is 17 x ~$1K to upgrade service to 200a. That’s 17K “deferred maintenance”. Get bids, but thats what it costs me here. Perhaps a discount for that many, but one is 1K.
Expenses seem extremely low. Elec should cost about $40/mo, x17 = 680. Gas about 30/mo, x17 = 570, water about 25/mo x17 = 425. Thats 1675. Garbage? Is owner billed for sewer separate from water? what about insurance, taxes, repairs at $150/mo per unit x15 is 2250 by itself. Lawnmowing, management expense, et al.
This guy is likely Bee Essing you on expenses.
Split out gas and electric, and Meters for water cost about $100 each, plus labor to install, call it $25 each for a handyman, thats 1700 - 425, call it 500 = 2200. That 2200 will cut your monthly expenses by 2500-3000, go conservative and call it 2500 - thats 10500 monthly income now.
scroll back up . . . . . .
stick built double means duplex, with a manager in one side? What is the FMV of a ??? sf duplex in this area? Will you have a manager? or manage it yourself - that could mean another duplex unit’s worth of income.
Are these MH rents and duplex rents and lot rents in line with fair market rents for the area?
Is weekly rental something that works here? Seems like a transient population, which means more R&M. But hey, the guy lives in the park, prob does all his own work - will you?
is the 8K income gross or NOI?
Do you have $100K? What terms does he offer for the OF?
You say he has totally rehabbed the old homes. Do any need replaced, or will they need replaced in the next few (
Re: Thoughts & Opinions - Weekly rentals - Posted by Ryan (NC)
Posted by Ryan (NC) on July 11, 2007 at 06:31:11:
I know I am the minor exception to the weekly rentals as I DO prefer to have a small portion (
Re: Thoughts & Opinions - small park - Posted by Mr. H (IN)
Posted by Mr. H (IN) on July 05, 2007 at 19:22:44:
As Mark says, seller reports that he can evict in 5 rather than 30 days.
I never considered the possibility of a hotel type sales tax for the weekly rentals. I do know that these taxes are suspended after 30 days of continuous residency and the amount paid reimbursed to the renter.
I’ll do some more investigating and pricing on changing electrical from 100 to 200 and also installing separate meters.
Re: Thoughts & Opinions - small park - Posted by Mark
Posted by Mark on July 05, 2007 at 06:54:15:
Tony,
I know that in some locations where I have lived, the reasons for weekly rather than monthly rentals is that it is a quicker process to evict someone on a weekly rental than a monthly rental.
That does not even touch on the subject of why you would want to rent when you can sell and not have the maintenance headache?
Re: my LOOOOONG random Thoughts & Opinions - Posted by Mr. H (IN)
Posted by Mr. H (IN) on July 05, 2007 at 19:08:31:
Thanks for your info and analysis.
Each lot is already metered for gas and electric. The water would have to be separately metered. He says he has all utilities in the park name because of the type of renters he attracts. The area isn’t really that bad so I suppose the weekly rentals are a result of the age/size of the units and limited parking. Looking at the park, I believe the largest mh that can fit would be a 14x70 but that would have to be verified.
You were dead on with the expenses. Seller reports average monthly electricity at 700, water 500, gas 700, and trash (dumpster) at 86. He only has one window unit in each mh.
Upon first look, the duplex is a nice house but a professional inspection would be needed.
The seller has built up a cash flow machine that works for him - he owns it out right, is almost 78 years old, and has a resident perform some minor maintenance. His age is forcing him to sell and he has based his price off of the income from the property.
Your response, along with Tony’s and Ryan’s, have cleared the air a bit and reminded me to look at this deal from a buyer’s perspective and not the seller’s. I’ll do some more research on this geographic area and the comparable rental rates. It may all be for nothing as the contract he has on it now may go through. According to the responses I have received and my discussion with the seller, the buyer with the contract may be in for a long landlord nightmare.
Re: my LOOOOONG random Thoughts & Opinions - Posted by Rolf
Posted by Rolf on July 03, 2007 at 22:52:43:
I just bought a community in Ohio for $460K. 42 spaces and easily
expanded to 45. 12+/-% cap rate. Already upped my cash flow
$1,200 per month by billing back the water to the residents. No park-
owned units. Very good infrastructure.
What’s the point? IMHO, you are not being offered any thing even close
to a good deal. I wouldn’t take this place even if it were offered to me
for free. You need to get some serious education long before you get
into this business. Get to a boot camp (or two), attend one (or both)
MOMS, hire someone like Frank Rolfe to help you with DD, read this
and other forums for God’s sake and learn something. It’s good that
you are at least asking for advice, but that is no substitute for learning
as much as possible on your own.
Education is the cheapest form of insurance you can buy. Spend the
money now or spend a lot more of it when places like this turn south in
the future.
Rolf
Re: Thoughts & Opinions - small park - Posted by Tony Colella
Posted by Tony Colella on July 05, 2007 at 08:17:01:
Good point about the eviction process but I would still want to see the true realities of weekly vs monthly eviction to determine if the penalty of slower eviction offsets the high turnover rate and any applicable taxes.
Fear of evictions does limit many folks but I find that once they actually take our advice and spend a half day at their local courthouse and ask questions, get copies of paperwork needed to file and watch a few cases they are educated and no longer intimidated.
As much as I love Lonnie deals I would beg to differ on your assumption that it is best to sell off mobile homes in small parks that we own.
Some of the greatest and fastest equity increase will come from owning rental units not to mention the paper tax write off of depreciation.
Talk about eviction nightmares. In many states it can be extremely long to evict a trailer owned by another person on your land. Many locations I have been in and folks here work in want you to pay to move the trailer to a storage unit (one you don’t own) when you evict the tenant. Talk about expensive. Just set aside another $2k Plus per home not owned by you. Not to mention the lost rent while the home sat on your land.
I would much rather control my profits and my expenses. Let me evict my renters in 30 days or less any day. Yes, I do have repairs to make but I also charge a great deal more in rent (over lot rent) to offset those costs. When I evict I make those repairs and get it rented in a matter of a week or two. A vacant lot from an evicted trailer will likely take months to buy, move set up, inspect and rent.
There are no right or wrong decisions in approaching these mobile home deals but we need to consider all the realities and outcomes when making those decisions.
We cannot in one breath take a fearful stance of avoiding eviction delays by renting weekly and in the same breath choose to sell the units off and have less income, no depreciation and what could amount to many, many months of no lot rent from a dead beat tenant trailer owner and then get the priviledge of paying thousands out of our pockets to move and store these homes.
Tony
FYI - Posted by Lin (NC)
Posted by Lin (NC) on July 04, 2007 at 09:12:54:
Mr. H has been proactive about his education and attended Tony and Scott’s boot camp last year.
I’m sure he’s asking the question because he wants to hear how others analyze the deal. He didn’t say HE had a contract on it.
Lin
Lin
Most weekly rental parks… - Posted by roundhouse
Posted by roundhouse on July 06, 2007 at 07:54:34:
All the weekly rental parks I have ever seen are renting to illegal immigrants who have a difficult time getting all the utilities and such in their name.