Need help analyzing deal

8 Replies

Details: 

19 unit park - 18 tenant owned trailers and 1 SFR (manufactured home on horse property). Has city water and has septic.

Currently rent is 325/per lot and hasn't been increased in 10 years. 

Purchase price 800K with 130k downpayment with 30 year amortization at 4.95% seller carry. 

Many code violations need to be fixed about $28,000 worth of work on electric to park to get up to code. Main house needs 35-40K worth of rehab.

Owner not willing to lower purchase price but is willing to not take payments for 15 months and do two years interest only payments and begin regular payments the 4th year.

Park expenses:

Water - 1200

Garbage - 600

Taxes - 250

Insurance - received quote for 600/month but thought that was really high for general liability but i could be wrong. 

Plan:

Increase rents by $100 the first of the year. Get electric up to code ($28,000) and rehab main house to bring in anywhere from 1,500-1,800 increase in income. Install sub-metering for water and have tenants pay their own garbage to decrease park monthly expenses.

Park is zoned for 14 more units for a total of 33 but county isn't letting development happen due to septic or until hooked into city. City sewer is a mile a way. Lots of commercial development happening so maybe in the next 5 years park would be able to hook into city sewer. 

Tell me what you think. Thanks in advance. 
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@Matthew Haban So you are going to raise rent by a full $100 all at once? That is going to cause a lot of uproar considering you are raising rent by almost 30%. I would consider sending out a letter to all the tenants saying you are planning to do renovations to improve the park and therefore rent is increasing. 

Also, regarding the $28k to get up to code; this is leverage that you need to use in the purchase price. Or is this why the seller is flexible with the repayment terms?

Originally posted by @Nicholas Sheridan, Jr. :

@Matthew Haban So you are going to raise rent by a full $100 all at once? That is going to cause a lot of uproar considering you are raising rent by almost 30%. I would consider sending out a letter to all the tenants saying you are planning to do renovations to improve the park and therefore rent is increasing. 

Also, regarding the $28k to get up to code; this is leverage that you need to use in the purchase price. Or is this why the seller is flexible with the repayment terms?

Thanks for the reply Nicholas. Yes the flexibility of terms is to help us recoup our up front front cost. Rents are severely under market but I can see tenants getting upset. Many have been in the park for 10 plus years and have enjoyed no increases. What is a typical percentage of rent increase would you recommend? Thanks

 

I would increase the rents annually at $30 increments. This is what I would do in this situation. 

Are you going to bill back the water bills?

Originally posted by @Gulliver R. :

I would increase the rents annually at $30 increments. This is what I would do in this situation. 

Are you going to bill back the water bills?

Yes that's the plan. Would you recommend 3rd party billing system? thanks

 

Yes, I would hire out a reputable water and sewer utility company. They would install the water sub meters, handle all the meter reading, retrieval of the bill payments from tenants, and send you a check every month. There are many out there that do this. Shop around.