analyze 35 site RV park with an interesting twist..
i'll try to keep this brief. I am currently looking at larger deals that are "unsexy" to the average investor and owner financed due to being maxed out on conventional borrowing at the moment.
I ran across an RV park that has been listed with an agent for over a year with no action. It is right on a main intersection with good road frontage close to town (could be a commercial buyout play down the road). It needs some work. It is part of death sale and the owner is looking to liquidate. i called him, he owns it free and clear and is willing to work around the agent. Here are the numbers...
current units: 14 (35 total available units)
rent income/month/unit: $325
barber shop on property rent/month: $300
total monthly income: $4,850
Here is the catch. The owner has been charging a TENANT $800 to manage the whole RV park and charging the barber shop $300. He let's the TENANT KEEP THE REST OF THE PROFITS!!! WTF. So the OWNER is only bringing in $1,100/ month. He said himself he wants out, realizes the park is underperforming, and is OK with this setup right now. There is also no books on this business. His family has owned the park for 30+ years.
I am concerned without talking to this TENANT that this could go south quickly if step in. If i am this tenant i would not want to give up the cake walk he is. I'd have to do something to satisfy this person, or ask him to step out of his role.
My offer to this man was 10% down ($29,500), 5% interest only/month for 5 years ($1,120/monthly payment) then full cash out after 5 years (i'll be able to get financing by then). He is asking $295,000 - the land is worth $220,000 and the barber shop building may be worth $25,000 and infrastructure somewhere in the $30,000 - $40,000 range for septics, electrical, office building, so forth. Totaling - $285,000 or so.
Expenses - $1,120/month interest payment
management company (10% TBD) - $485
internet - $120
insurance - $250
water - $500
septic - $0 (included)
dumpster - $75
property taxes - $400
total expenses - $2,950
Current income with current units: $4,850
Current expenses (am i missing something???) - $2,950
Estimated current cashflow - $1,900/ month
At this rate i would have my initial investment back in 16 months if I make no other improvements. I am budgeting around $5,000 in deferred maintenance costs which would put me back to 19 months to return my initial investment.
ANY thoughts on how i should approach this situation?? The seller said he would get back to me next week. everything is contingent upon the tenant coming to an agreement with me on the management process. Please advise.