Mobile Home Park vs selling land+home
Hi BP!
I am purchasing 17.5 acres of raw undeveloped land in South Texas with the intent of subdividing and re-platting the land into .7 acre plots and putting a double wide on each lot. My question is would you either sell each lot individually or rent them home out until you have full occupancy and either cash flow or sell to another investor?
Each lot with a 28x76 home cost approximately $44k. For a 28x56 it will cost $36k. This includes the cost of raw land, each lot having city water meters, septic tank, electric, the transport and cost of the mobile home.
The current market for selling is approx $50/sqft and rents are $900-950/mo.
For a 28x76 $44k investment I'm estimating a sales price of 105-110k sales price which is a 60-65k profit per lot.
On renting I would get the 28x76 for $36k. For 15 lots the cost would be $500k but with figuring a bank loan and rent income at $900/mo yearly income= $162k yearly expenses ( not figuring a property manager) = $55k yearly profit= 107k. At a 10% CAP that would be 1,379,500.
I'm leaning towards doing combination. Sell 12 acres with home+land and keep 5.5 acres and have that as cash flow. Only thing with bank financing is they want the land as collateral, but I'm using a separate bank loan because it was only 5% down. I guess I could come out of pocket and do one sale without financing which would be enough to own the land free and clear. Any thoughts?
I think this is a question you have to answer for yourself. Do you want the monthly cash flow from the project or the profits from it? What do you desire?
What type of improvements/ infostructureis the city making you do? Roads, curbs,
What type of improvements/ infrastructure is the city making you do(Roads, curbs, water retention, etc). I would be shocked if you could get a bank loan for 5% down on a land deal. I'll be more like 25 to 50% down. Sounds like a very interesting project keep me posted on the progress. Dave G from Phoenix AZ
#3 Contractors Contributor
- Contractor
- Los Angeles, CA
I would say sell all, buy another 50 acres, sell all, buy 200 acres, hold and retire.
@Bruce May I was thinking the same thing but the cost per acre doesn't really seem to drop to a reduced price until you get in the 50+, and would tie up more cash doing that. So I was thinking of doing smaller 5-10 acre projects around the surrounding counties to appeal to a wider audience and doing owner financing at 10-12% interest rate.
@Adam Johnson What are your thoughts?
@John Fedro Have any of your students or friends tried this approach?
I don't really have a lot to offer on this one. First, I don't know what the market wants, so I can't speak to whether it makes any sense at all from that viewpoint. Second, I am not a huge fan of raw development, mainly from lack of experience as well as my area being cheaper to buy it broken and fix it versus building it new. Generally, I like to buy somebody else's mistake and fix it versus venturing out and trying something new.
My gut tells me it seems like a lot of work to develop the land, but I think that is primarily based on this not being my "arena". That is the long way of saying I don't have a lot of intelligent input, so I can't really offer any thoughts either way.
More generally, however, numbers never lie. If you are using good numbers and they meet your goals, go for it. If the numbers don't make sense or hit your goals, make your decision from there. Don't ever buy on emotion!
Thanks for the tip Adam