Help evaluating Mobile Home Park and strategy to increase value
This is the first MHP deal I have analyzed and would like to hear your opinions about it--
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-104 total sites, 68 owner-occupied, 36 vacant on 3.5 acres
-On city water/sewer-Lot rent is $310 and at market rate
-Assumable loan of $1,365,000, due June 2019, at 4.9% rate
-Buyer would need downpayment of $535k
-68 lots x $310 x 12 x .6 x 10 = $1,517,760 value at 10% cap
-List price is $1.9M
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If I paid the $535k down payment with a local bank loan for $435k at 6% amortized over 20 years after a cash downpayment of $100k, the monthly NOI, after 40% expenses and debt service (for both loans), would be $10k/month.
The value-add strategy I'm considering is to take that monthly 10k NOI and buy/move in homes until the park is full. If each relocated home costs $10k, it would take 3 years to fill the park.
At the end of those three years, the park would be 100% full (104 sites), monthly NOI would be about $18k and the park would be valued at $2.3M using a 10% cap.
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Questions
1. The list price is $400k higher than the calculated value of $1.5M… likely because the current owner sees the growth potential in the pro-forma numbers. How would you negotiate the price down to $1.5M?
2. Is my strategy sound regarding spending 36 months of NOI to fill the park with units so I can collect lot rents?
3. Would a local bank loan $435k on this deal?
4. Is this a deal worth pursuing?
Thanks, Dave