What would you pay for this park?

[Jamin Olds]

Hey Everyone,

Currently negotiating on a 22 lot park that is off the market. I have ran my numbers and but would like some advice. Here are the 2019 numbers:

Income: $84,480

Expenses: $32,084

Net income: $52,395

I am trying to purchase this at a 9-10 cap rate and my number are not matching up with the sellers.  

What would you pay? What purchase price equals 9 and 10 cap rate?

Appreciate your help!

Jamin

[Frank Rolfe]

Assuming the net income is $52,395, then the most you could pay would be an 8% cap rate = 654,937. 

Why an 8% cap rate? 1) that's about as low a cap rate as any appraiser will go (I assume you need a bank loan) 2) that's about as high a price as you can go and still meet your debt coverage ratio 3) that will give you around a 3-point spread if you canj borrow at 5%.

Would I buy that deal at 8% cap rate? No, unless I can push the rents up significantly over time. The problem with buying smaller parks is that the exit strategy is tougher -- there are fewer buyers for deals under $1 million due to the better financing starting at that price point (CMBS vs. bank debt). But if you can buy it at 8% cap rate today, push the rents up $50 per month starting in 60 days from purchase, and then keep advancing the rents annually, then it might work out fine.

As always, the other variable -- which I don't know -- is if it needs any cap-x and how great the location is.