What should i be asking?

Question

I want to get into the mobile home scene but here in California its a bit over priced so i would like to buy out of state. But in Cali I happen to run across a deal that is assumable, the owner only has 8 MH and 8 lots so its small but every unit is rented at 650-800/mo. He owns the units and the land. his asking price is under 150k!

I dont know the area well its about 40 mins from me. But i dont even know what to ask and why im asking it? here is a small list i can think of.

1-I need to see your financials (dont know much about reading them except income and expenses)

2- is the managment included in your expenses?
3- are tenants on seperate water and electricity? or is it all paid by you and you have a simple meter of your own and add it to their rent?
4- are there any updates the city wants you to have done or are they planning to rezone the area?
5- do you have the titles for all the homes?
6- are their any liens?
7- how much is owed if you have a loan?
8- how long is each leased still signed for and how long has each tenant been there?
9- how is the garbage and sewage paid?
10- what year is each unit?

there were a few more but i cant think of them this second. I just dont know exactly what to look for but even if the average pay came to $5700/ mo on a loan thats 139k, thats cashflow crazy! I dont know much about the town though either and need to find info on building plans, grown, etc. any advice on where i can find this also? Like citydata.com or something?

Marc Faulkner · Answer

Smells like a deal to me!

Scott R. · Answer

By the way, the place im looking at is lots plus homes and the cap is 34%..... so its rediculous. and if he has meters up and they pay their own utilities, its gonna be crazy cause by the calculation it should be worth 192k at 60 but if all the utilities are paid and stuff then u calculate at 70 instead of 60 then it jumps like 45k. and id be paying at the most 139k

Scott R. · Answer

im confused on the cap rate. I know the calculation but i heard from an investor the cape rate is the return on the banks money. so if i financed at 7% i should be looking for a 2-3% spread so 10% cap.

But then he talked about 17% to even 30%. I got confused because i was thinking ok does he mean taking the contract and owner financing it out at 10% and making that 3%? or just the calculaton needs to be higher than the interest rate by 2-3% at least to be worth ur time?

Rachel H. · Answer

Hi Dwight,

Those questions are a good start. Probably the most important question would be why are they selling.

Knowing the market, having a team and knowing the business is key to this business. If you plan to pursue this, I recommend getting control of the deal - perhaps getting it under contract with an option on it. Then, do your due diligence with an exit strategy to either bird dog, wholesale and/or partner with a more experienced investor in your area.

Hope that helps!