Thoughts on what this park is worth? i need to make an offer
Real Estate Investor · Cebu, Philippines · Member since 2008 · 297 posts · 5 votes
So i posted this in a deal analysis forum and got one reply. Thought I would post it here for MHP knowledgeable men and women.
Hi alll!!
I could use a little help with putting together a deal on a MHP.
I dont have all of the numbers but here is what I do have,
18 pad sites
16 mobiles are owned by the park. They are older homes ranging from 1972 to 1978
Currently the park brings in $5890.00 a month gross.
Water, sewer and garbage is $ 80.00 per unit per month or $ 1440.00 total per mo.
taxes per month are $ 641.00 or per year they are $7700.00
If i were to only figure in pad rent it would be $250.00 per spot 250.00 x 16 = 4000.00 a mo
Payment= ???
So that is the info that I have right now.
Can you guys give me some kind of idea what this place is worth?
Any info is appreciated.
Thank you
Travis
Don't make the mistake of overpaying for this because you are self-managing. Self-managing is not the norm so you should at least pay yourself a management fee in addition to your return. Here's are some other numbers you can plug in:
1. Insurance: Liability (If you plan on financing this and I hope you do, you will have to have it) $750-$1,000;
2. Park owned homes will be .75% - 1% of your insurable value. In this case, the amount required to bring another home in. You can buy, move/set-up/renovate a home for $10,000 if you know what you're doing and if you are ok with mid-late 80's model homes. $1,200-$1,600. This won't go on your P&L because you are valuing the homes at a wholesale value.
3. Speaking of wholesale value, the homes are probably worth no more than $2,000 a piece. Most of these homes can be sold for around twice that for cash but it will likely take you 2-3 years to sell off 16 to residents who are worth selling to. Most of your current residents won't be buyers.
4. You may manage this yourself but that is not the norm. For a park like this, your management compensation package should be around $400-$500 per month. $250 for in free lot rent and $150-$250 in either free home rent or salary. This won't buy you much but that's the industry norm on a park this size. Your next buyer and your bank will use a number very close to this so you better put it in or else you've overpaid.
5. Dirt roads require maintenance. In addition, banks and future buyers are not fond of them. Even if you can keep the cost of having them down, you still have the added headache of having less financing options and a reduced number of future buyers when you exit.
6. Travel: Imagine you are self managing and imagine you have tenants who aren't trained to pay on time. Also imagine that you are in court every month for the next year after you buy this park. That will soon be your reality. I would again, re-think self-managing. Some states require an attorney to represent you in court if you own in an LLC. If this is the case, then you will need to make changes to my P&L below.
The annualized land-lease component P&L will likely look like this:
Revenue
Lot rent: $48,000
-Less Vac Loss: $2,640 (5%, you may be more like 10% in yr 1 considering the current owner probably doesn't have a screening process)
Total: $45,360
Expenses
Water/sewer/trash: $17,280
Insurance: $1,000
Taxes: $7,692 (this is an insane number for a park this size. Make sure this is RE taxes and not personal property. Your taxes on homes should not be included on this eval because they belong to the wholesale value of the inventory)
Management: $4,800
R&M on infrastructure: $2,700
Lawn/Snow: $1,200 (hard to estimate when I haven't seen it or know where it is)
Legal/Accounting: $1,000 (see number 6)
Travel: ? (you'll be there about 4-6 times next year even if you hire a manager)
Advertising: $500 (don't just rely on Craigslist)
Electricity: $900 (don't include electricity for homes here, this is street lights)
General Admin: $250
Reserves: $1,800 (there are people on these forums who will tell you that you don't put this above the line. My mortgage broker says you do. I trust my mortgage broker over some guy on bigger pockets)
Total: $39,122
NOI: $6,238
On a 10CAP, you would pay $62,380 and maybe give a total inventory value to the homes of $32,000, for a total of $94,380. Changing the taxes above will make this offer amount much higher if those include the home taxes.
Your upside is in recapturing a portion of the water/sewer/trash. The best you can hope for is about 90% due to leaks and bad debt. So, $15,552 can be added to the NOI each year at a cost of around $4,000 for the meters and installation. If you bid it out really well, you can do it for $4,000 on 16 analog meters under the homes with digital displays on the side of the trailers. You may even DIY the labor since you plan on self managing. It doesn't take a rocket scientist to install a water meter.
I would find out what the RE taxes are on the park and fix my evaluation. Then, I would take the $15,552 of upside and add it in to get an offer range. For example, since installing meters is such easy upside, then you might say that the potential NOI is $21,790. My criteria states that I want to be at better than a 13CAP after easy upside is achieved. So, my max offer is $167,000 here plus the inventory of $32,000, minus the $4,000 to get it there, equaling roughly $195,000. So, I'll start this seller out somewhere between $94,380 and $195,000. Where I am willing to go on this range depends largely on leverage. If the seller is holding the paper with really good terms, I'll usually be willing to go all the way up to $195,000. If there is no financing (from seller or bank), I might not even be willing to do $94,380. Your goal is to have something like this cash flowing better than 20% within three-four months and also have some equity. If you self-manage, it should also pay you for your time above and beyond the return.
Unfortunately I can't. You're missing a lot of crucial information like your target returns, park occupancy, location/market info, insurance, tax reassessment likelihood, payroll, R&M, management fee, water and sewer source, etc. I'm assuming this is a two to three star park given age of homes and size.
For now, I'd underwrite conservatively: assume a 50% expense ratio and a pretty high cap rate given the high number of rental homes and size. Also think about potential cap ex like roads, putting in new water and sewer lines, etc.
You should check for sales comps too.
16 x 250 = $4000
- $1440 (Water,Sewer, Garbage) Buy it this way but IMMEDIATELY get the tenants paying their own. You might lose a few tenants but you will gain more in the end.
- $641 Taxes
- $100? Snow Removal (you live in Montana. I'm from Idaho)
- $150? Management
- $100? Park Paid Utilities (overhead lights, empty trailers that need heat in the winter,etc)
- $150? Insurance (you better have some sort of Umbrella coverage
- $100? Infrastructure/Road/Asphalt Maintenance
- $50? Accounting/Legal/Licenses
- 0.00? Travel (if you live close then no cost. If not, must be considered)
___________
$1,269 Monthly NOI x 12 = $15,228 Annual NOI. If you want to purchase at a 10 Cap =
$15,228/.10 = $152,280 Purchase Price.
The current trailers are a liability. Monthly Income should cover monthly maintenance costs.
It sounds like the infrastructure may be old as well. If so, then the $100/month infrastructure cost may not be enough. Check the water and sewer pipes. May be galvanized water and orangeburg pipe. Both very bad.
How much are they asking for it?
My take.
Sam
BTW. If you buy it right, spend $400/each on separate water meters (18 X $400 = $7,200). Then have the tenants pay their OWN utilities you will add the $1440 back into your monthly NOI (5 month payback) and add $1440 X 12 X 10 Cap = $172,800 to your VALUE.....very substantial.
$1440 is much to big a chunk to be taking out of your NOI each month. Even if you have to drop rent $30/month to maintain tenants once you start making them pay their own utilities you will be WAY ahead.
Sam
thanks for the reply Marshall.
I don't know the ins. The current owner doesn't have any lol.
Location doesn't matter. Let's say mid west
I will manage it my self
Water and sewer is city
Gas and electric are throught the utilitie co.
Sewer is city
And roads are dirt do not too much maintance
Don't make the mistake of overpaying for this because you are self-managing. Self-managing is not the norm so you should at least pay yourself a management fee in addition to your return. Here's are some other numbers you can plug in:
1. Insurance: Liability (If you plan on financing this and I hope you do, you will have to have it) $750-$1,000;
2. Park owned homes will be .75% - 1% of your insurable value. In this case, the amount required to bring another home in. You can buy, move/set-up/renovate a home for $10,000 if you know what you're doing and if you are ok with mid-late 80's model homes. $1,200-$1,600. This won't go on your P&L because you are valuing the homes at a wholesale value.
3. Speaking of wholesale value, the homes are probably worth no more than $2,000 a piece. Most of these homes can be sold for around twice that for cash but it will likely take you 2-3 years to sell off 16 to residents who are worth selling to. Most of your current residents won't be buyers.
4. You may manage this yourself but that is not the norm. For a park like this, your management compensation package should be around $400-$500 per month. $250 for in free lot rent and $150-$250 in either free home rent or salary. This won't buy you much but that's the industry norm on a park this size. Your next buyer and your bank will use a number very close to this so you better put it in or else you've overpaid.
5. Dirt roads require maintenance. In addition, banks and future buyers are not fond of them. Even if you can keep the cost of having them down, you still have the added headache of having less financing options and a reduced number of future buyers when you exit.
6. Travel: Imagine you are self managing and imagine you have tenants who aren't trained to pay on time. Also imagine that you are in court every month for the next year after you buy this park. That will soon be your reality. I would again, re-think self-managing. Some states require an attorney to represent you in court if you own in an LLC. If this is the case, then you will need to make changes to my P&L below.
The annualized land-lease component P&L will likely look like this:
Revenue
Lot rent: $48,000
-Less Vac Loss: $2,640 (5%, you may be more like 10% in yr 1 considering the current owner probably doesn't have a screening process)
Total: $45,360
Expenses
Water/sewer/trash: $17,280
Insurance: $1,000
Taxes: $7,692 (this is an insane number for a park this size. Make sure this is RE taxes and not personal property. Your taxes on homes should not be included on this eval because they belong to the wholesale value of the inventory)
Management: $4,800
R&M on infrastructure: $2,700
Lawn/Snow: $1,200 (hard to estimate when I haven't seen it or know where it is)
Legal/Accounting: $1,000 (see number 6)
Travel: ? (you'll be there about 4-6 times next year even if you hire a manager)
Advertising: $500 (don't just rely on Craigslist)
Electricity: $900 (don't include electricity for homes here, this is street lights)
General Admin: $250
Reserves: $1,800 (there are people on these forums who will tell you that you don't put this above the line. My mortgage broker says you do. I trust my mortgage broker over some guy on bigger pockets)
Total: $39,122
NOI: $6,238
On a 10CAP, you would pay $62,380 and maybe give a total inventory value to the homes of $32,000, for a total of $94,380. Changing the taxes above will make this offer amount much higher if those include the home taxes.
Your upside is in recapturing a portion of the water/sewer/trash. The best you can hope for is about 90% due to leaks and bad debt. So, $15,552 can be added to the NOI each year at a cost of around $4,000 for the meters and installation. If you bid it out really well, you can do it for $4,000 on 16 analog meters under the homes with digital displays on the side of the trailers. You may even DIY the labor since you plan on self managing. It doesn't take a rocket scientist to install a water meter.
I would find out what the RE taxes are on the park and fix my evaluation. Then, I would take the $15,552 of upside and add it in to get an offer range. For example, since installing meters is such easy upside, then you might say that the potential NOI is $21,790. My criteria states that I want to be at better than a 13CAP after easy upside is achieved. So, my max offer is $167,000 here plus the inventory of $32,000, minus the $4,000 to get it there, equaling roughly $195,000. So, I'll start this seller out somewhere between $94,380 and $195,000. Where I am willing to go on this range depends largely on leverage. If the seller is holding the paper with really good terms, I'll usually be willing to go all the way up to $195,000. If there is no financing (from seller or bank), I might not even be willing to do $94,380. Your goal is to have something like this cash flowing better than 20% within three-four months and also have some equity. If you self-manage, it should also pay you for your time above and beyond the return.
Charlie thank you for the in depth response. I appreciate it. Sam thank you as well.
Charlie.
I agree on the taxes. they are very high and I will check into it with someone at the court house. As an example my house cost $370,000 and taxes are around 2500.00. You said to make sure the taxes are real estate taxes and not personal property. What do you mean by this? What is the difference?
Lawn and snow should be zero in this case. there isnt a community park area that needs to be mowed and I believe the street is city. I will find out this week.
As far as travel it is only a 40 minute drive so not too big of a deal.
Going to find out about electricity. I think that they are city owned lights so i shouldn't have to pay any.
Water- In this town the city wont allow water to be put into tenants names. So it has to stay in the LL name. So i cant do individual meters.
Taxes: You should receive one bill for the real estate and a separate bill for the homes (Personal Property)
Snow Removal: Doubtful the city owns your dirt roads. In any event, it is also doubtful the city plows them even if they do. I have to plow "city roads" all the time in my parks so my tenants can get their kids to school and go to work. You're park is last on the city's list for plowing if it's even on its list. Same is true for road repairs.
Electricity: Electric company will usually own the lights and replace the bulbs. However, they still send you the bill. Check on it.
Water: All this means is that the city will not take over your utility billing. This means that you would install the meters, read them, and bill them yourself. Nothing ever goes in the tenant's name in this set-up. You may also elect to do RUBS. Check your state's laws and pick a RUBS billing method that isn't management intensive (like size of home or number of rooms), not number of tenants.
"Electricity: Electric company will usually own the lights and replace the bulbs. However, they still send you the bill. Check on it."
Yes i have acouple of these now. I pay about $ 30.00 a month
And if I do sell the homes off how do I do it and conform to any new laws?
Do I do Zero interest?
Is there a set way to sell them?
@Travis Elliott, @Account Closed provided a ton of excellent info to help analyze this deal. I recommend that you search for Charlie and Kevin Bupp's podcast and their website. I'm sure you'll also gain a ton of insight listening to a bunch of their episodes and spending time on their site.
It's been great following this conversation, as it's helped me narrow down my own MHP criteria/analysis skills.
Good luck with the deal and keep us posted!
-Andrew
@Travis Elliott, @Account Closed provided a ton of excellent info to help analyze this deal. I recommend that you search for Charlie and Kevin Bupp's podcast and their website. I'm sure you'll also gain a ton of insight listening to a bunch of their episodes and spending time on their site.
It's been great following this conversation, as it's helped me narrow down my own MHP criteria/analysis skills.
Good luck with the deal and keep us posted!
-Andrew
Andrew were you not wanting me to quiz Charlie on this thread anymore? Not following you.
I found some of his podcasts but they wouldnt play with I tunes. I downloaded I tunes and they still wouldnt work. I am not sure how to listen to them. Maybe Charlie DeHart knows
You are fine to quiz me Travis. For 70's model homes, you would likely sell most of these for cash. Tax time is a great time to get this done. Otherwise, you would likely use a rent credit agreement. Rent credit is nothing more than a glorified rental. It relies on the resident playing along that the home is/or will soon be theirs.
As for podcasts, iTunes has no support system so there is no way for me to even ask why they aren't playing for you. However, you can play ours here: http://mobilehomeparkacademy.com/category/podcast/
Charlie can you describe tha rent credit system? How would I set this up . Thanks for your help
No problem. Sun Communities (industry REIT) is the pioneer of the construction. Basically, you are doing a rent to own but treating the home as a hybrid rental. This allows you to sort of tap dance around Dodd-Frank a little. What we typically do on say a home we intend to finance for $8,000 is:
* First and foremost, get a downpayment. I like $1,000. You may elect to call this a "non-refundable security deposit" or "initial buy in of credits" or "one-time membership fee".
* Let's say we like 12% interest and a 3 yr amortization on this home (=$265 home rent)
* So, we say that we will rent credit this home for 3 years at a rental price of $265 (this does not include lot rent). Since only an average of $222 is applied to principal on an $8,000 purchase, this is their monthly rent credit allotment.
* These credits apply towards the purchase of this home or any other home in the community that is unoccupied at the moment a resident decides to use their purchase credits (kind of like airline miles or customer retention points)
* Under this agreement, the tenant is responsible for any maintenance that does not threaten the habitability of the home (state specific as it relates to what habitability is)
* When the three year term is up, we will sign the title over to the resident
The goal is to move the renter along the path of being a renter to owning a home. Both in responsibility and actual ownership. It's a decent program but your better move is always selling for cash if you can. Sadly, no matter how much hand holding you do, renters are usually just always going to be renters. It takes time and effort to find good homeowners. Rent credit is a tool to help you find those people through attrition.
Charlie thank you again. I owe you one!!
One last question though . Is there any legality to charging interest on the sale verses just raising the sales price and charging zero interest.
In my example, there is no difference between saying each qualified month where you pay on time receives $222 of rental credits vs. saying the home is $9,540 ($265 x 36) and you receive $265 for each qualifying month. Just don't spell out "mortgage terms" in your agreement. You can dictate whatever you want as far as your customer retention program is concerned so long as you keep it from being a disguised mortgage. By the way, there is still no case law what-so-ever in our industry. Dodd-Frank is nearly 8 years old and it's never come up as far as we know in the park industry. Originating a $10k mortgage is technically wrong but it's so far below anyone's radar that you'd be the most unlucky person in the world if you got nailed for it. So, even if you screw it up, no-one really cares (so it appears).
This is probably a good time to say I'm not SAFE act licensed or a lawyer.... I think that's how that goes. Oh, and I'm not worth listening to under any circumstance. Everything above is my personal opinion and my personal observation from working full time in this business over the last three years. Certainly don't take this as bona-fide fact.
So I got an excepted offer!!
Now I have to decide if I am going to keep the homes or not.
The additional rent from the homes is tempting as long as I have a good handy man in place.
And if I do sell the homes off how do I do it and conform to any new laws?
Do I do Zero interest?
Is there a set way to sell them?
I would wholesale them and get them out of the community. New homes draw different residents and usually ones who will pay on time.
Travis! Congrats, where did you land on the pricing?
Charlie I ended up st $:140000
So I got an excepted offer!!
Now I have to decide if I am going to keep the homes or not.
The additional rent from the homes is tempting as long as I have a good handy man in place.
One of the ongoing debates in our industry is over rentals as opposed to owner occupied. Make no mistake - it is a legitimate debate worthy of discussion.
I do not, and never have, done rentals. The reason is simple. A community with no rentals is worth more because it makes more money in the end than a community that has rentals. The costs associated with a community doing rentals are significantly higher than a community leasing space to owner occupied.
Other, I am sure, will have many reasons why they prefer rentals.
So I got an excepted offer!!
Now I have to decide if I am going to keep the homes or not.
The additional rent from the homes is tempting as long as I have a good handy man in place.
One of the ongoing debates in our industry is over rentals as opposed to owner occupied. Make no mistake - it is a legitimate debate worthy of discussion.
I do not, and never have, done rentals. The reason is simple. A community with no rentals is worth more because it makes more money in the end than a community that has rentals. The costs associated with a community doing rentals are significantly higher than a community leasing space to owner occupied.
Other, I am sure, will have many reasons why they prefer rentals.
So I got an excepted offer!!
Now I have to decide if I am going to keep the homes or not.
The additional rent from the homes is tempting as long as I have a good handy man in place.
One of the ongoing debates in our industry is over rentals as opposed to owner occupied. Make no mistake - it is a legitimate debate worthy of discussion.
I do not, and never have, done rentals. The reason is simple. A community with no rentals is worth more because it makes more money in the end than a community that has rentals. The costs associated with a community doing rentals are significantly higher than a community leasing space to owner occupied.
Other, I am sure, will have many reasons why they prefer rentals.
Ken thank you for the reply. So are you telling me that my lot at 250 a months is going to make more money then my Park owned home that rents for 700 a month due to breakdowns exedra?
Travis,
First, to repeat, there are no doubt others whose opinions will be different than mine.
The trick is to understand and detail the overhead costs of both owner occupied homes and those of rental occupied homes in the community.
Done correctly, the costs are normally about double when renting homes than simply renting lots for homes that are owner occupied. Here are three things that drive operational costs up when dealing with rentals:
Experienced community buyers know this and far more and will be less likely to bid on the community if it comes up for sale. In addition, most of the major lenders will charge higher rates to make loans on the communities themselves, if they will make the loan at all.
Bear in mind that you should hear other opinions. Congratulations on your purchase by the way!
Thanks Ken