25 Lots are fully occupied and bring in $6650/m. Most mobile homes are owned by tenants with a few rent to owns. ( Monthly income for RTO is $1k).
Over the next 2 years, I would increase lots rent to bring in another $600 the first year and an additional $600 the second year. So... by the end of the 2nd year, I'd be collecting $7,850/m + the RTOs. Even with the increases, my lot rents would be over $100/m less than other lots in the area.
MH are older 70s. Park well kept with Public Water and Sewer. Tenants pay for ALL their utilities.
Expenses of $1,300/m include common electric, garbage, insurance, property taxes, land maintenance.
I would have no maintenance fees on MH since they are owned by tenants. RTO agreements also state that tenant is responsible for all maintenance, etc.
Owner wants $750k which seems high...but expenses are very low (and would obviously be fully verified prior to closing).
This property would be used for my eventual retirement income (over 15 years away). No monthly profits would be withdrawn for personal use. All would stay with property. If used for extra mortgage payments, it could be paid off in less than 9 years.
I'm assuming the lot rent is $266 per month (based on your stats) so the industry metrics would say the value would be roughly:
25 x $266 x 12 x .7 = NOI of $55,860 per year.
$55,860 NOI divided by $750,000 = CAP rate of 7.5%.
The assumption that you can raise the rents $25 per month per year per lot sounds reasonable, based on the market comps and SF and apartment rents.
A 7.5% cap rate would seem low on a deal like this -- but it's a free country and that's your choice. Typical deals of this size trade for a 8.5% cap rate or greater. They key item is the upside potential and the strength of the market.
Thanks for the response Frank. Seems like a worthwhile prospect. ...easier than having 10-15 properties all over the place with much, much lower returns. I've been searching for rental homes/multis for months with no luck.
Also condition of roads...when will they need repaving, and how long will that last?
As well as fencing and any other common areas. And ad 10%-20% vacancy rate loss, when
someone doesn't pay rent, and you have to kick them out, etc. Usually these are left
in horrible condition, and need rehabbing before reselling. Also, you may need to replace instead of rehabbing, if it's a tear down - & looking at $50K-$75K for a new single wide.
10% CAP rate is the norm for any investment real estate. So, with your figures above,
$642K with 10% CAP rate - before deducting for all of the things mentioned above.
Watch out for the claimed really low expenses. Go with what frank says about average expense ratios to base your pricing off of. I personally would be looking for a 9+ cap or if lower good seller financing (20 % down payment -5% interest rate -7 year note minimum length w a 3 year option. 20 or 25 year amortization. Maybe 1 year interest only at the start to help with renovations
Good luck. Get creative. There’s more than 1 way to make a deal work
We just received all of the paperwork from the current owner showing Bill's, etc.
It has public water and sewer that is billed to the individual tenants. If I recall correctly, it was put in 10 or so years ago. We plan to have the pipes checked during inspection. They were put in new when converted to public utilities.
Gravel road with equipment to rake it.
Fence on one side is in good condition and owned by neighboring company.
Common area is some grass at rear with basic shelter and picnic tables.
Looking at rent rolls for last 8 years. One pad was vacant. I believe there was no home on the pad...its on my list to ask about. (I know he also paid the town their fee for a new pad.) One other lot had a vacancy for a couple months. One pad for one month. Everything else has been occupied. A few names may have changed...but new people came in immediately after people left.
He typically does little rehab. Mostly wiping down. He has one vacant home now that we walked thru to give us an idea of the condition that he rents them in.
Replace instead of rehabbing if needed- I thought most were from 70s but looks like 80s and a few 90s. I would not place a new home in the park. I can easily get a used home. For much, much less.
There is room for additional income with this property as well. I can pull in another $1100/m.
Still digging thru the paperwork....but no red flags yet.
Our bank should do 5.5 with 25% down, 25-30yr amortization. But any other bank recommendations are appreciated.