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.
Some random thoughts to consider:
I always try to separate the park from the homes and negotiate them separately.
Your goal is ALWAYS to turn rental homes into tenant-owned homes, through rent-to-own arrangements or selling them on contracts. (Must meet Dodd-Frank and CFPB rules!)
I think that, on the quality of homes you are talking about, if I can get 36 mos. of home rent from folks, and make them responsible for repairs and maintenance, I'd just give them the trailer at the end. Their value right now is 36 x rent, at the most.
I would want to put the homes in their own LLC and value them at no more than rent x 36 mos...and that's if I'm being really negotiable with the seller. I wouldn't try to value them based on cash flow or cap rate; that's what the Seller wants, though. (They are a LIABILITY, not an asset, because they cost money to remove.)
What's the park worth if you removed every rental home, based on, say, a 10% cap rate? Negotiate from there.
Personally, this project sounds like a HUGE headache, and I would need some phenomenal rate of return to make it worth my while.
Some random thoughts to consider:
I always try to separate the park from the homes and negotiate them separately.
Your goal is ALWAYS to turn rental homes into tenant-owned homes, through rent-to-own arrangements or selling them on contracts. (Must meet Dodd-Frank and CFPB rules!)
I think that, on the quality of homes you are talking about, if I can get 36 mos. of home rent from folks, and make them responsible for repairs and maintenance, I'd just give them the trailer at the end. Their value right now is 36 x rent, at the most.
I would want to put the homes in their own LLC and value them at no more than rent x 36 mos...and that's if I'm being really negotiable with the seller. I wouldn't try to value them based on cash flow or cap rate; that's what the Seller wants, though. (They are a LIABILITY, not an asset, because they cost money to remove.)
What's the park worth if you removed every rental home, based on, say, a 10% cap rate? Negotiate from there.
Personally, this project sounds like a HUGE headache, and I would need some phenomenal rate of return to make it worth my while.
Thanks for the reply Marc
In regards to the park owned homes do you have a system or a way that you sell mobiles to tenants that makes them dod frank compliant? Can you explain your process?
As far as the park value is concerned it has some additional spots that I didnt mention in the first post. There are 7 additional spots an another part of the property. The sewer main had a leak so the owner capped the sewer pipe off a couple of years ago. I think that I could have new schedule 40 ran for about five thousand dollars. This would fix the sewer problem
So with the seven adittional spots there are a total of 25 spots on this property.
If they were all rented ( they are not) it would look something like this
250 x 12 x 25 = 75,000 x .60 x10 = 450,000.
One problem is that you can buy old stick built homes for 40,000. They are typically a 2/1 or a 3/1 sometimes with a garage and with the land of course.
So there isnt a market of people who want to move manufactured homes on to a rented lot. Owning their own land house and garage for 300.00 a month is much more enticing.
Now due to the fact that people are not looking to move homes on and due to the fact that I have eight empty spots I have to consider owning the homes in order to get rent from each spot.
Here is a best case example of the park with me owning a home for every spot.
25 spots at 600.00 a moth = 15,000 - 3000 for monthly expense = 12,000 a month profit.
That would be a nice income off of this one park.
In regards to the park owned homes do you have a system or a way that you sell mobiles to tenants that makes them dod frank compliant? Can you explain your process?
One problem is that you can buy old stick built homes for 40,000. They are typically a 2/1 or a 3/1 sometimes with a garage and with the land of course.
So there isnt a market of people who want to move manufactured homes on to a rented lot. Owning their own land house and garage for 300.00 a month is much more enticing.
Travis - Since I believe this park is in the Dakotas, I worry that my experience is not terribly extensive although I did partner on a park development (since sold) several years ago during the shale oil boom.
There are many parts of the country where local ordinances and zoning are nightmares but have almost no trouble filling at sizable lot rents and other parts of the country where the local authorities and zoning is little or no problem but the owner has to work harder for residents.
Before I did much more in any direction, I would invest some time and money in a true market analysis. If you don't have a good idea how to do that, send me an email directly so I can send you a long PDF attachment that will help.
I have yet to run into a situation personally where there weren't pretty good solutions for but, you need to know your true potential market before jumping in with advertising and sales efforts, or even buying additional homes. Certainly the 40K stick built adds to the challenge, but I believe it can be overcome.
The only way to sell homes without a lending license or some joint venture relationship is for cash.
Good Luck!
In regards to the park owned homes do you have a system or a way that you sell mobiles to tenants that makes them dod frank compliant? Can you explain your process?
One problem is that you can buy old stick built homes for 40,000. They are typically a 2/1 or a 3/1 sometimes with a garage and with the land of course.
So there isnt a market of people who want to move manufactured homes on to a rented lot. Owning their own land house and garage for 300.00 a month is much more enticing.
Travis - Since I believe this park is in the Dakotas, I worry that my experience is not terribly extensive although I did partner on a park development (since sold) several years ago during the shale oil boom.
There are many parts of the country where local ordinances and zoning are nightmares but have almost no trouble filling at sizable lot rents and other parts of the country where the local authorities and zoning is little or no problem but the owner has to work harder for residents.
Before I did much more in any direction, I would invest some time and money in a true market analysis. If you don't have a good idea how to do that, send me an email directly so I can send you a long PDF attachment that will help.
I have yet to run into a situation personally where there weren't pretty good solutions for but, you need to know your true potential market before jumping in with advertising and sales efforts, or even buying additional homes. Certainly the 40K stick built adds to the challenge, but I believe it can be overcome.
The only way to sell homes without a lending license or some joint venture relationship is for cash.
Good Luck!
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