First Investment - Need help with numbers

6 Replies

Cash - $249,000 ( might be able to get it for around $225,000

Annual Gross - $53,880

Average Gross Monthly - $4,490

Annual expenses - $8,891

Monthly expense - $740

Annual Net - $44,989

Average monthly - $3,749

What are your thoughts?

What sort of a property is this?

These two numbers are WAAAAY out of whack:

Average Gross Monthly - $4,490

Monthly expense - $740

If this is a residential rental (apartments, SFR, etc), or some non-triple net property that expense esitmate is far too low. If its a triple net it seems high.

OTOH these two numbers seem quite promising:

Cash - $249,000 ( might be able to get it for around $225,000

Average Gross Monthly - $4,490

Jon Holdman, Flying Phoenix LLC

@Jon Holdman  Sorry.  This is actually a mobile home park.  The park owns several homes and rents them and the rest are privately owned and the park just collects lot rent.

@John H. Since it is a MHP there are a few questions you should be asking: How many MH's are on the property? How many are park owned? Does it use sewer or a septic system? Is the water/power metered? What type of MHs are in the park? how many double wides? how many single wides? What is the condition of the park owned homes are they old?

@John H.  I love these properties. If you could get financing on $225,000, your 20% downpayment would be $45,000. That means you'd get your money back in just over a year and the rest is gravy! ...at least that's the initial view.

After you get over the initial excitement:

1 - look into the condition of the units which are park owned

2 - ask for several years of P & L statements

3 - look for insurance, property tax, repair costs and inspection expenses.

4 - double check the income numbers to be sure the 2011 and 2012 net incomes were as good as the one presented to you.

5 - figure out how you plan to manage the place and factor that into the numbers.

if, after closer analysis, things still shake out anywhere near 100% cash on cash, jump on it!

Looks really promising!

MHP's usually sell at 10-15 cap rates.  I would expect expense ratios to be in the 40% range.  That would mean that a park should sell at 4 to 6 times rent.

At the gross you stated that would put the value at $215,520 to $323,280.  I have a hard time believing the seller's claimed expenses.

Due Dilligence is the name of the game here.

Good Luck.

Bill 

Need a lot more info to give you a proper assessment, but the seller (or broker) is clearly understating expenses. Bill is right, most stabilized parks will be in the +/- 40% expense load range. However, you've mentioned that this park has park owned home rentals. If there is a sizable percentage (20%+) of park owned homes, I would expect expenses to be closer to 50%. The difference is due to the increased maintenance, turnover and insurance costs associated with park owned homes relative to lot rent only tenants. 

Best of luck!