Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes
Hey Guys,
I am looking at a park and am in the middle of due diligence. I've called a few nearby parks and the lot rents have brought up a red flag that I would like some input on.
Park I am targeting
55 Spaces (MH's only)
Lot rent $190 nothing included
Public roads and city utilities
Occupancy is 30%
Park Comparison #1
Allows MH's and RV's
Over 80 spaces
Lot Rent is $145 nothing included (RV rent is $450/month)
Park is at 100% occupancy including RV's
Park Comparison #2
Allows MH's and RV's
145 spaces (45% MH's)
Lot rent is $190 (Includes H2O, sewer, trash)
About 80% Vacancy
The park I am targeting has not been run very well. Very bad reviews on google. The other parks have great reviews.
My concern is the obvious. Being that the lots rents are higher than other parks and the vacancy is lower, can I overcome this hurdle by improving the park and making it a nicer place to live.
Or
Is it too risky because of the cheaper, more experienced competition?
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
6y
Before you go any farther, you might want to run a test ad that says NAME OF EXACT PART OF TOWN THE PARK IS IN. 2 & 3 bedroom mobile homes for sale or rent from $595 per month -- includes lot rent. (XXX)XXX-XXXX.
Run that ad in the largest metro paper that serves your market. Put in in the classified section under "mobile homes for rent". Also run the ad on Craigslist. Use a Grasshopper or similar number. Run the ad for ten days.
If you get 20 to 30 calls over 10 days it might work. If you get 2 to 5 then it will never work.
I am concerned about the amount of vacancy in that market. There would have to be huge demand to want to tackle a project like that.
Another huge roadblock you will have is lending as nobody likes to make loans on parks under 70% occupied.
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
6y
Before you go any farther, you might want to run a test ad that says NAME OF EXACT PART OF TOWN THE PARK IS IN. 2 & 3 bedroom mobile homes for sale or rent from $595 per month -- includes lot rent. (XXX)XXX-XXXX.
Run that ad in the largest metro paper that serves your market. Put in in the classified section under "mobile homes for rent". Also run the ad on Craigslist. Use a Grasshopper or similar number. Run the ad for ten days.
If you get 20 to 30 calls over 10 days it might work. If you get 2 to 5 then it will never work.
I am concerned about the amount of vacancy in that market. There would have to be huge demand to want to tackle a project like that.
Another huge roadblock you will have is lending as nobody likes to make loans on parks under 70% occupied.
Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes
6y
@Frank Rolfe I am setting up an add this evening. According to the seller, he recently rented one out in two days and had over 40 calls on it. This park is in a small town in KS that has about 20k people.
I have a lender already in place that will go 20% down, 20 year amortization, 6% interest rate, 5 year balloon.
Also, much of the deferred maint. was repaired this past year.
@Frank Rolfe I am setting up an add this evening. According to the seller, he recently rented one out in two days and had over 40 calls on it. This park is in a small town in KS that has about 20k people.
I have a lender already in place that will go 20% down, 20 year amortization, 6% interest rate, 5 year balloon.
Also, much of the deferred maint. was repaired this past year.
If you dont mind, could you let me know your lender in a pm perhaps? And do they loan in Arkansas?
Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes
6y
@Frank Rolfe I'm curious your thoughts on this park overall. It has 11 current TOH renting at $190/month lot rent, 1 Building that is rented by a church, $300/month, and 7 vacant MHs that need repair. The park has 55 pads. City utilities all billed to tenants. City streets. I am having a hard time valuing this park. I love the upside potential, however, how much value do I attribute to "upside" if any? If I finance this park, I will essentially need 19 TOHs rented out to break even, including PITI and all expenses. Being that these home are on site, but need rehab, should I give them any additional value aside from the value of the home itself? Any insight would be greatly appreciated!
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
6y
The formula would be 11 x $190 + 300 x 12 x .5 = NOI $14,340. So you'd only want to pay around $140,000 for the park based on existing performance. But the seller probably won't sell it that cheap.
Then you look at what the replacement cost is. 55 lots x $15,000 + land = around $1 million.
Then you go to the end of the movie and work backwards so 55 x $190 + 300 x 12 x .7 = NOI $90,300 so it's worth about $1 million.
Since most people on deals like this want to make at least double the value of the park, then it looks to me like the most you could pay is $500,000 less all needed cap-x (assume $100,000+) so a range of $150,000 to $400,000.
Then you look at the risk to get to that reward and it would be 1) buying homes to fill the vacant lots, coupled with renting or selling them 2) any cap-x the park needs since it has been poorly maintained 3) obtaining and retaining financing due to the low occupancy and poor condition 4) negative cash flow until you get it in a condition to cover the mortgage (based on what you pay).
The wildcard on this park is the lot rent, as $190 is really low in when the U.S. average is roughly $280. Can it be raised? And how well does the test ad do and how much confidence do you have in the market?
Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes
6y
@Frank Rolfe wow! I truly appreciate the insight! I currently have the park under contract for $330k. We are approved for the cash program, and will likely utilize that. Would you see any issue with doing so? Also, would you suggest going with 2 or 3 bed models? I ran a test ad yesterday for a 2 bed 1 bath at $550, including lot rent, and I’ve had 6 people reach out so far.
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
6y
You should always go with 3 bedroom if you can. There are very few 3 bedroom apartments in the market, so it's an extremely desirable commodity. Our 3 bedrooms are the first to sell always, and your ad response is many times higher with 3 bedroom vs. 2 bedroom.