I recently came across a park with the following details:
85 Pads $370/month
Area pad rents are between $440 and $485
There are 14 park owned homes with two homes on rent to own and two homes vacant. The owner has been selling the park owned homes either for cash or on a rent to own.
Taxes are $45k/year
This park is on city water but a private sewer. It is located very close to the city and has good access to grocery stores, restaurants, etc. The owner has owned the park since his family opened it in the 1960s. He is ready to sell it but hasn't come up with a price. Park is in decent shape. Some of the roadways needs some work. Most of the park is asphalt driveways. The park could use some new fencing, increased lights, and better signage.
How would you value this park? The current tax assessment is $2.2 million.
I am thinking of writing him up three offers.
- All-cash offer
- Half cash/half seller finance
- 1/3 cash, 1/3 seller finance, 1/3 bank loan.
Thanks in advance for any advice!
85 lots x $370 lot rent x 12 x .6 = EBITDA $226,440.
At an 8.5% cap rate value = $2,664,000.
This is one of those deals you can make $100,000 per year cash flow with -- all you have to do is boost the current lot rent to market and you would have 85 x $100 x 12 = $102,000 cash flow (but you cannot boost them all at one time, more like $33 per month per year for three years.
The big concern on this deal is the "private sewer" operation -- is that septic, packaging plant or lagoon?
85 X $370 X 70= 2,2201,500.00 Very good starting point. Doesn't assume a Cap rate, but give potential "range" of value.
Thank you very much for your reply. Frank, I have listened to almost all of your podcasts! Thank you! They are a great resource!!
Regarding the private sewage, my understanding is it is a septic system with a drain field that is located across from the park. The owner owns this land as well. I would have this inspected for sure as I know a couple of local contractors who work on these systems. Anything else I should look out for? I plan to make him a couple of offers with various owner financing.
Josh thanks for the reply as well :)
Your three offers I would keep it like this .
2. Seller financed ( rates and terms to be negotiated. Maybe star off with 20-25% down 30 year ammo 10 year balloon.
3. Bank Financed. Unless there is a some urgency or distress , there may not be a bid variance for the seller in taking less for cash offer ( number 1) as the net effect of proceeds will be similar.
Hey Stephen, just wondering if you were able to pull the trigger on this deal and if you would be willing to share details? How much, where it was and if the deal was unsuccessful what made that happen? Feel free to private message me.
Msg me too if you feel like it. I’d live to know how this deal turned out and how you decided to value the park.