Quote from @Roger D Jones:
Bryan,
Just so I have the basic assumptions correct this is a 10 space park with one current park owned home renting for $950 per month and 9 other unoccupied homes each in need of significant repairs- to the tune of 100k in total per the seller's estimate. After making these repairs the plan would be to sell each of these homes for 'several thousand dollars' and collect pad rent thereafter. Current expenses are $1300 per month (water, sewer/septic, taxes (property and 10 homes) and insurance (liability and homes). Given the above current owner is in the red every month $350 and is asking $475,000 for the park.
If I am mistaken on any of these assumptions please let me know as my comments are based on these assumptions.
From what I am seeing the seller is way out of whack with their asking price. There are two ways to value a mobile home park. CAP rate (how many real actual dollars you put in your pocket every year) and wholesale (value of the property and wholesale value of the trailers). You should never buy a park when sellers try to blend the two. Lets look at both-
CAP RATE- Currently it looks like the park as a whole is in the red every month and as such he should be paying you to take it off his hands. In asking you to pay 475k for the park he is asking you to pay him for your futue efforts, risk and results (performa). That is not how it works. If he wanted full CAP rate value of the park he would have spent the 100k to keep his trailers in good repair, sold them off and taken the pad rent monthly.
WHOLESALE- This is the value of the raw land, a discounted amount for the utilities and the wholesale value of that one trailer. Given you will be spending on average 10k per trailer to rehab and then selling them for far less- they are worth nothing and due to the financial risk they are more of a liability.
So is there an upside on this deal?- Well... it depends. Lets say your plan works flawlessly and you can rehab the 9 homes and get them sold off and you keep the one home as a POH rental. I'm not sure where you got your 'potential income of 8-9k' per month as my math has it at $950 for the rental and 9x$400 for the TOHs for a monthly gross of $4550. Less an slightly inflated monthly expense of $1600 and your at $2950 per month or $35400 per year NOI (assuming no major expenses). At a 10% cap (which is average for a mostly TOH park) the park would be valued at 354K. And since you just spent 100k rehabbing those 9 homes your at $254k purchase with YOU taking all the risk, effort and energy... plus the loss of income while you rehab and resell those 9 trailers which is going to take time.
I won't give you a final opinion on what I think it's worth but would urge caution. Here is an analogy... I restore old muscle cars. I get a real kick out of guys who are selling old busted up, rusted out 68 Camaros with no engine, transmission or seats and want 25k for them as they see them fully restored for 40k. They just don't get it...
I am just a mom and pop operator and this is just my opinion worth only the time it took me to type it out. Best of luck
Roger
I greatly appreciate the analysis Roger. I agree with on all points and have been mulling over an offer price. I can also confirm that this park was last purchased for u see 200k 6 years ago.
also to clarify. I wouldn’t like mkt rehab and sell the units. I would either sell the units to avoid moving them and maybe make a little profit and use the lots to rent for 300-400 per month or rehabs the units and rent out for 800-900 per month.
I do see potential in 12 months making good cash flow but it’s hard to justify the debt until that point. I am requesting seller financing and would like to see what options I could get if it’s even worth it.
Again, Thanks so much for the detailed response. I’m still learning!
