I'm looking at a Trailer Park that looks to to be a good investment, first time looking at a commercial deal and I think it might be priced to high....but I'm not sure.
Currently ~$8700/month income (don't own trailers)
Their is room to increase plot fees and bring in $10,000/month
2015 income$111000 Expenses 47,000
$64000 annual gross,
(111000)* (.6 *40% expense load on income*)/(.12 cap rate) = MOST I SHOULD PAY is $590,000 which is based on a 12% cap rate....but the property is cash positive and doesn't have applicable comps in the right area's.
64000/870,000 = 7.4 Cap Rate currently
73000/870,000 = 8.4 Cap Rate potential in 1-2 years
Taxes once readjustment for the price will increase as well
I cover water sewer trash. No septic!!
Good acreage in a good area, I think the land will appreciate well.
I'm looking at financing options now, but want to see if any experienced investors could shed some light on my price concern.
Yes, it looks like the park is over priced. Mobile home park buyers determine the value of the property based on the current NOI, not what it will do once you buy it and make changes and definitely not on comps. You're 40% expense ratio is on track. A quick down and dirty formula to determine value is # of occupied lots times lot rent times 60 or 70 (60 if tenants don't pay sewer, water, trash, 70 if they do). Like I said, that's a real basic formula taught in the industry but there's obviously more to take into consideration. For instance, the number of vacant park owned homes and what they are worth, other sources of income, and plenty more.
@Frank Rolfe from www.mobilehomeuniversity.com is the leading teacher on this investment class and his website has a great forum and resources you can purchase to answer all your questions. If that's not enough he also has a boot camp at various locations around the country several times a year, even Denver in the summer. It's well worth the investment to attend and get educated BEFORE you buy one of these. I've attended twice.
Since you are paying for Water/sewer/trash expense ratio may be higher than 40 percent. If you can purchase for the right price first thing you do is install water meters and bill for trash.
Great, thank you Bruce. This helps me a lot. I would still like to pursue the deal, any creative financing ideas that I could use to get them closer to their #? I asked about owner carry already and they weren't interested.
Also, thank you for the advice Aaron. If this deal happens that's a great idea.
Present a written offer with terms that work for you.
Three things can happen:
1) They say no
2) They say yes
3) They counter
Either way you win because now you can move forward in negotiating this deal or finding a better one that works.
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