Have a park under consideration:
38 pad, 15 owner occupied, Lot rents $140/mo, last increased $20 in 2012, 23 vacant lots, single wide only, no park owned homes, Southern IL. Asking price $110K, seller financing avail. Current owner is running it from Alaska. A sewer line was repaired in 2012 and trees removed. 40 year old community, homes 20-30 years old.
Population of town: 8000 (20,000 within 10 miles), median household income $29,000, median rent $616, median home $62,000.
Licenses and misc: 696
Net: $ 14012 (40% expenses)
Using: 15*140*12*.5/.15=$84,000 value ballpark assuming 50% expences and 15% Cap.
Offer: $75k, 20% down ($15K), $60K balance seller financed at 5%, 10 yrs. ($636/mo)
I would like to increase lot rent by $20/mo but have to find comps for the area to compare to. I am at a distance (900miles) from the park. I would plan on moving in 1 to 2 homes per year. This would be my first park.
Any feedback would be appreciated. Mark
Without digging too deep into the P&L, here are a few thoughts to consider:
- a 40 year old park likely has 40 year old infrastructure. You should prepare for some capital expenditures to update utilities that are provided by the park. You will also find that repairs are more frequent at this age
- you don't mention if it is well or city water nor do you mention if it is septic or city sewer
- this is a tricky size park to manage from a distance, in my opinion. It is a little too big to be small and too small to be big. You will need to find somebody in the park or nearby to manage issues. With that in mind, your management figure looks low.
- Why are only 15 of 38 pads occupied? This is a key question
Not to say that this is a bad deal, just needs careful consideration. We bought a park a year ago that had roughly 45 occupied (and paying) tenants, several abandoned homes, and dozens of empty pads, with a total of 107 pads. We rolled the dice on it after doing our due diligence and careful consideration, we gambled that the low occupancy was due to poor management. Coincidentally, we learned AFTER buying it that less than 10 years prior the place was full with a waiting list. That was about the same time as a major management change, so it all made a lot of sense. So far, so good with ours.
On the flip side, if demand is weak because of saturation of the market with other affordable housing choices, then this may not have such a great upside. I looked at a park with a lot of vacancy that at first glance seemed like a good pick. Then I drove through the park for sale as well as the 2 others right next to it. I rated them "good", "better" and "best", with the one for sale being the "good" one. The nicer parks had quite a few vacancies as well, so my upside would take longer to realize and I would have to compete by price to attempt to draw prospects. I decided to pass on that park because it seemed like an uphill battle.
Your main competition is going to be other parks and apartments. Look to see how strong demand is as well as how much supply is available. I'm not an expert on parks, but I am learning quite a bit as I go. Others may have thoughts as well. Don't take my thoughts as bad, just giving you a few things to look at.
@Adam Johnson Yes it has city sewer and city water billed directly to tenant by city. I thought the same of infrastructure. That would kill the deal. I only have $1300/yr for capex so I should raise that in my analysis. What should I budget for water lines/sewer in the older parks? There are a number of parks in the area. Most do have empty lots. This one is in town the others are out some. I will have to check apartments.
First try contacting the city to see if you get lucky. You may find that they maintain the pipes, though that isn't likely. If they maintain them, find out where their responsibility ends and yours begins.
You will also want to find out the type of pipe for both the water and sewer. Wild guess is galvanized for the water which can last a long time, but eventually starts to develop holes from corrosion. Depending on the soil, it can happen faster/slower.
For the sewer, find out the type of pipe for that as well. My guess is either iron or orangeburg (not sure if I spelled that right). The latter material contains asbestos. Iron pipe, over time, builds up scaly rust on the inside which can slow flow. You mention trees removed a couple years ago. That MAY be a sign of root infiltration into the pipes, which is not uncommon. Even though the trees are gone, the roots may not be.
Honestly, I don't want to speculate on costs. I have a background in heavy site and utility construction and job conditions vary so much that it can be tough to pick a number out of the sky. Part of your due diligence may include hiring a local plumber to run a video camera through the sewer mains if you are responsible. That will tell you a lot about the condition of the pipe. The city may also have an idea, make friends with somebody in the DPW if you can.
Again, don't let me scare you away. Now is the time to do your homework, though, not after it becomes YOUR problem.
Most parks out there were built in the 50-70s so if you eliminate 40 year old parks due to aging infrastructure you're limiting yourself to quite a small world. A 50% expense ratio seems conservative enough considering you don't pay water. Question is what are the lines made of, what condition are the roads in etc.
For me Southern Il is a real concern as I know housing prices there are very low. Those are some very low lot rents too. My concern would be a glut of other affordable housing options as the reason for the high vacancy. I'd really dig into housing market analysis and test the market demand before moving forward.
I too would be very concerned about the population in the area and what housing options are available. To fill the 23 vacant lots could cost you a significant amount, but if you are able to bring in newer homes it could be the key to your success at filling the park, but find out from where you are going to get these homes.
A quick down and dirty formula for purchase price would be 15 (homes) X 140.00 (lot rent) X 70 which gives you a purchase price of $147k so the asking price given the factors you presented seems like a fair price.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.