[Calc Review] Help me analyze this deal
Hello BPers forgive me as im trying to do my best with the sellers financials provided. Im trying to analyze this deal to see if it makes sense to purchase and if so at what price.
The Knowns:
All utilities are thru the city and there is no well or septic its city sewer, electric, trash, water etc.
The park appears to be very pieced together and there is a mix of mobile homes, a house, apartment and several single "shacks" some with plumbing and some without. (tenants without take a piss and deuce in the laundry room/ park restroom).
Seller isnt willing to carry any financing, they want to cash out
General overview of rent roll and occupancy and financial break down which i entered in as much data as i could based off what seller provided in the Deal Analyzer
The Unknowns:
amount of deferred maintenance
Amount of inherited issues with city in regards to permits for modifications and additions made to mobile homes in the park structurally and with plumbing and electrical and who knows what else.
Im making an offer contingent upon inspection and a 30 day due diligence period with an appraiser and city inspector to look and tell me what issues i may inherit if i purchase the park.
Fire away with questions and ill try to clear up the financials as much as possible to make sense of this and i can hit the broker up with specific questions to get a better picture of the deal as a whole.
#2 Mobile Home Park Investing Contributor
- San Antonio, TX
@Mike G. What are the numbers? Ask the seller to provide real numbers including rent rolls and invoices paid on any work done to the park and structures in the community. Sounds like some of them may need some work!
Get 90 days feasibility if you're able. There is a lot to do - it can be done in 30 days, but don't give that way if you don't have to.
It takes time to review the financials, inspect all the buildings, the infrastructure, talk to the tenants, perform a Phase 1 ESA, discuss with the city any zoning / code violations or other chronic issues they see. All this will help justify your purchase price and also confirm no hidden surprises.
You need more than a city inspector and appraiser or you will get hosed.
Since you did not include any financials in your post can't really tell you much more. Good luck!
ok so here is the numbers from the OM that the broker furnished to me:
ESTIMATED LENDER ACQUISITION COST:
List price: $1,175,000 ( @ 28 units = $41,964 per site)
Buyer requesting Down Payment of 30% = $352,500
Projected Lender Financing: $792,500 @ 5% FIXED 30 year AMORT with a 10 year DUE
INCOME, EXPENSES & CASH FLOW:
Actual 2016 Gross: $212,752
Actual 2016 Expenses: $95,915 (45%)
Actual 2016 NOI: $116,837
Projected Lender Debt Service: $57,494
Projected Net Cash Flow: $59,343
FINANCIAL INDICATORS:
Cap Rate: 9.16%
Projected Total Cash Return: 18.96%
PROPERTY DETAILS:
All age park
28 Homesites
# of Park Owned Homes: 28 (100%)
Occupancy: 100%
Utility Reimbursements: NO
2016 INCOME AND EXPENSE ANALYSIS:
Total Net Rent: $212,752
Total Operating Income: 212,752
Real Estate Taxes: 4,054
Property Insurance: 5,524
Utilities ( all lumped into one total, broker and/or seller did not offer it broken down individually ..yet): 30,658
Payroll & Benefits: 26,225
Maintenance & Repairs: 2,058
Administrative/ Office: $26,668
Advertising & Promotion: 728
Total Operating Expenses (45%): $95,915
--------------------------------------------------------------------------------------
Net Operating Income: $116,837
The screen shot copy of the rent roll excel sheet i am waiting on further explanation from broker in order to determine how to interpret all the acronyms that the seller put in it so i can begin to figure out the rent roll for that month. Also its noteworthy to mention that they have only provided one month's rent roll. How many months back do i request in order to gain a clear picture of the parks true occupancy and vacancy?
Any other ideas/insights/questions that i should be asking the broker?
Im digging thru the due diligence manuel from MHU to cross my T's and dot my i's right now.
thank you all so much for your time and analysis, much appreciated?
Ill have more specific info as soon as the broker gets to all my questions.
Familiarize yourself with “lot rent” versus “home rent”. Here is specifically why it’s important, and the deal may not appraise...
http://forum.mobilehomeuniversity.com/t/poh-and-appraisals/12359
Instead of capping the home rent into the purchase price instead value each home as an individual purchase on top of the purchase price for the capped value using lot rent. Say the Park is worth 100k based on lot rent capped, and each of the 28 homes are worth 5k blended average (e.g. what you can reasonably sell them for in your market). Total price should be 100k + 140k = 240k.
The MHU book is a great resource. Keep asking questions and good luck.
#2 Mobile Home Park Investing Contributor
- San Antonio, TX
@Mike G. I'd watch the taxes. With the purchase price amount, your taxes will definitely increase. Not sure how they do it in your county but in some places they go by the amount purchased as the basis for the next owner. Taxes look extremely low at that price. Regarding the rent roll, they're definitely hiding something if they only provide one month's of rent. You want to see what was reported to the IRS, if possible. At least a few years back. The other item that's lacking is maintenance and repairs. Somehow I doubt the cost to maintain (unless brand new!) is that amount. Ask to see invoices of work paid and done to the park. Last thing, the utilities needs to be broken down or explained further. Lumping it all together seems like something's not being accounted for. You need more information to make a decision. Unless you just want to low ball an offer. Hope that helps!
Jeffrey H. Very good explanation Jeffery. I did go to the Mobile Home university and learned about that. What I need to do is dive back into that material and re learn it because this park is so hodge podged together and is actually more “shacks” then mobile homes with a 3 plex and and large double wide where the owner lives currently so their book keeping is terrible and the broker already discussed this with me. I will mention that about the income from the rentals of the units can’t be capped into the price because it’s not real income to arrive at a true valuation. I agree with you.. the more points you guys bring up the more I think once I really dig into this MHP I’m not gonna like what I find.
@Mike G. I'd watch the taxes. With the purchase price amount, your taxes will definitely increase. Not sure how they do it in your county but in some places they go by the amount purchased as the basis for the next owner. Taxes look extremely low at that price. Regarding the rent roll, they're definitely hiding something if they only provide one month's of rent. You want to see what was reported to the IRS, if possible. At least a few years back. The other item that's lacking is maintenance and repairs. Somehow I doubt the cost to maintain (unless brand new!) is that amount. Ask to see invoices of work paid and done to the park. Last thing, the utilities needs to be broken down or explained further. Lumping it all together seems like something's not being accounted for. You need more information to make a decision. Unless you just want to low ball an offer. Hope that helps!
@Rachel H. That is a great question. I think in this city / state the tax burden that the buyer will get will be based off the new sales price. The park was established in 1938 and has never been sold ( been in the same family for generations) so your probably dead on about that one.
I told the broker today about my concerns with the rent roll and he basically said that what he was able to produce for the OM took a ton of work to formulate the numbers to be what they are based off the scratch pads of accounting they the seller maintains and calls records lol. So I let the broker know that part of the reason the park hasn’t sold is because no one can get accurate information from the rent roll and everything else to even make a decision. It’s literally like a shot in the dark...
The more this gets discussed the more my gut is telling me to find another park for sale but this one is like 10 minutes from my house and would be convenient to handle the day to day operations.
@Mike G....if you went to the bootcamp and you follow that model...you know this is a bad buy.....unless this is in california or somewhere where the land is easily worth more than what your paying...but im not a speculator or in the raw land business....so my advice is very limited.
Advice....i would throw this deal in the trash and keep looking for other parks....keep them in your Rolodex of follows up's...but follow up in like 6 months and if they still haven't sold it to someone and haven't come down to real world prices..then just call them back in another 6 months.
But what i think a park is worth and what others think its worth is different and can be based on your expertise, investment criteria, type of cash you have, and if that cash has a timeframe/deadline.
one thing i would find out is what is the market lots rents? and see if they are high enough(like $500 bucks...) which could make this deal a little more attactive.
One caveat to this deal is that if you plan on running it like an apartment, then your valuation is compeltely different and maybe this pricing will work for you....which running it like a horizontal apartment is not necessarily the wrong thing to do if that model works for you...but keep in mind it may limit your exit strategy or ability to get financing.
best of luck
@Ryan Groene .... your right this is a bad buy and my gut tells me so. I think i will move on. But at the same token you have a point as horizontal apartment option is a possibility as the lot rents are 750-850 a month. This lot rent ambiguously includes the rent of the trailer/bungalow in it of course according to the broker. I feel that there is more costly unknowns than upside so ultimately ill walk away from this and do a 6 month follow up call. thanks for the advice.