Question About Buying 5 Unit Park, (my First Deal)
Hi all,
I am considering buying a park with five trailors on it, Asking price is $100,000. Each one rents for $375 and a storage shed rents for $25 for a total of $1900 a month.
Seller wants $25,000 down and will carry the $75,000 at 8%, for 15-30 years.
Any advice would be great, Questions I should ask, things to find out, etc....
Thanks in advance for your help.
you might want to shop around for your financing options, unless you are comphy with the 25k up front. sounds like a good positive cashflow..
on the face of it ,it looks good
,but you might want to get the three year financials from the owner.Lenders usually want 3 years financials.
your credit also depends on how much the lender is willing to give
If the financials look good and and your credit is reasonably good say starting 600+ then Iam sure you should be able to do this deal..If you dont have the money or credit is bad...then you can have someone to do a seller wraparound(just one of the options)...that would the way to go too...
Thanks for the help.
I looked at the park and it is in pretty bad shape. The taxes on each trailor are based on them being worth $1000 a piece. They are probably worth 2-3 thousand each, and the land might be worth $40k. That puts the appraised value at around $50k. Am I crazy for considering paying $100k for it? I just see the cash flow aspect, but I can't get over paying twice what it is worth.
My final figures show :
$100k purchase price
$25k down
$75k loan 8% 20year
Monthly figures:
$627.33 debt service
$20 taxes
$50 Insurance (guessing)
$75 Water and Sewer
Income with 25% vacancy rate $1,425.
Minus expenses: $652.67
I just don't know if this is a good deal, great deal or could turn into a huge headache and I'll end up wishing I had looked for something else.
Any more advice would be great, especially about paying twice appraised value!
Thanks a lot
100K spent bringing in $600 dollars a month? That's not bad, 3 times as much as the 2% monthly profit I try to make on SFH.
Of course landlording a park doesn't sound like my cup of tea either.
I agree with Savvy its all about the cash flow. If you are making money on it then that is what your purchase should be based on. If you want a second opinion try the Multi Family/Mobile Home park forum. The way I look at a park is monthly net times nine, anything below that starts out as a good buy.
Good Luck,
Kyle
If the land is worth $40k and the homes are another $10k, how much are the improvements worth (sewer, water, foundations, whatever)?
If the answers don't add up to $100k, why wouldn't you just build a park on some other land nearby?
(Speaking as a newbie here - that's not meant to be a rhetorical question.)
If you assume expenses and vacancy are 40% of revenue - I think this works out to 13% Internal Rate of Return - which is why it is attractive. however - most deals are not what they are presented to be - things to check.
1. Talk to local bulding and safety people - is there a problem? I once did this and found that the property I was considering was in a federal flood plain and that if we had a fire I would not be allowed to rebuild.
2. What does the master plan say about this area. Talk to the planning commission / department.
3. Look at the lease agreements. Are they ok for what you want? Talk to each tenant. How long have they been there? How o they support themselves.
4. If these are junky old aluminum single wides they are worth almost nothing. Will ypou need to rep[lace them - repair them?
5. As someone said - why not build a park - can you get a permit?
6. Talk to the police - do you have a crime / drug problem. Is there any chance the DEA is going to take possession. I know of a cabin thatg was razed and is now a concrete pad because the tenants were running a meth lab.
7. Talk to the neighbors - the mail man - etc.
8. Ask the seller why he is selling and dont be guillable if his answer sounds strange.
9. Ask the tenants why the seller is selling.
You get the idea - be cutrious as hades because once you've got it you may be stuck with it.
More ideas. Realize that it is in the sellers interest for you to fail. That way he gets to sell it again and again - each time collecting 25,000. There is a guy here that bought some land at auction cheap and sells it repeatedly with 3000 down and payments to him. Buyer then discovers that health dept wont let him build there and forfeits and seller sells it again.
For this reason check the seller very carefully - is he a good guy? how many criminal convictions, how many times bankrupt, sued, etc. Has he sold it before? What was his prior business? HOw do his prior customers feel about him? DDont ask him these things - find out independently. He may be super clean - he may not - in either case it may influence your decision.
Also - who manages the park now? Are you up to that task?
You would be best if you can structure the deal so that he has more to gain by your success than by your failure.
Jamespb: questions inside of posts are usually disfavored, you will probably get more attention to your question if you start a new thread. In an attempt to answer your question, building requires a ton of up front capital with no immediate cash flow. You have building costs, holding costs, costs, costs, costs, and no money coming in. A park that is already rented and has good positive cash flow is not costing the investor anything, he/she used the banks money to buy (except the down) and uses the renters to pay the note.
I believe the biggest question is to survey the people that live there. Are they happy with the environment? Do they know of any problems?
Your best info will come from the people that live there.
Thank you all for your responses.
Well I passed on the park and told the seller that I decided I didn't want to put so much capital in one investment. That was about 45 days ago.
Yesterday he called me and said he still wanted to sell and would take:
$85,000 with $10,000 down
$75,000 loan at 8% 25 year term.
Here are the monthley expenses:
$578.86 P.I.
$20 taxes
$100 insurance
$75 water
Total: $773.86
Monthly income:
$1,275 (with 30% vacancy rate)
minus expenses equals $501.14 cash flow.
I figured $10,000 for a $501.14 cash flow is pretty good so told him I would, and we close the 16th of this month.
Like I said, thank you all for you comments and I will let you know how it goes.
I forgot to mention, the title company is going to write up the note for the purchase. Of course the deed for the land will go into my name with the seller as the lein holder. The trailors will go into my name with no leins, but the seller is going to keep them until the loan is paid. I think I can talk him into giving me one title every year until I get them all (of course if I make all my payments).
I did not know the title company could write up the note for us. Does anyone know if that is legal?
Thanks for your help!
You need to have a lawyer approve everything before you go to closing.
Well I bought it.
Let me thank everyone who said I should have a lawyer look over all of the paperwork. And let me say that I should have taken your advice. Nothing major just some small inconveniences. I now have an llc and I am transferring all the titles and deed into it's name. It is going to cash flow really well once I get them all rented; currrently only 3 out of 5 are and it is still cashflowing a little.
I tell you the hardest part of investing is getting the nerve to buy your first one. If anyone reading this is wanting to get started in investing, just go look at propertys, make offers and jump in!
I am already considering getting a commercial loan to suck cash out of this property to put into a bigger park or apartment building. If I can keep it rented at a decent rate I should have no trouble paying a $1400 a month payment (thats with 20% vacancy). So I say just jump in and listen to advice posted on this web site! Thank you everyone who offered me advice.
Hello! Great job on your first purchase!! How is it going? What advice would you have for me, as I am in a very simular situation. Small park, 8 homes, 100% occupied...tenants 5yrs to 31yrs. Park is 31 years old. What do I look out for? Thank you!
Investoraz,
My first bit of advice is: If this is your first investment it should be close to the area that you live. Mine is 100 miles away in a town that I grew up in, and i've had to drive to it a lot more than I had planned.
For the rest of it, it isn't going as well as I was thinking it would. The rental market slowed down a lot since I purchased it.
Currently I only have 2 out of 5 rented, I have ads in the local papers, flyers around town, and signs in the windows. They all state FIRST MONTH FREE, ect...
And while they sit empty I have to pay the utility bills every month, which are around $130 on each trailor. So basically right now it is an alligator, and if I don't feed it (money) it will eat me alive.
If you don't own the trailors and are just collecting lot rent I would say thats the way to go. If the park you are buying comes with the homes I would try to sell the homes either outright or carry the loans and still cashflow on just the lots. Then you don't get calls in the middle of the night and you don't have as many unexpected bills.
Good luck and I hope that this helps you with your park. Also if you run into problems try not to let it stress you out, just sit down look at the problem and start figuring out what you can do to fix it. That is what I am doing instead of just worrying about it. Good Luck and please let me know how it goes!
Hello - I to was considering buyiny a 5 MH park about 1 year ago and after much time working the numbers my partner and I decided that it was not good for us to do a 5 park deal for our first park.
The biggest problem that we could see what that with only 5 homes if more then two where vacant at one time we would have to take money out of our own pocket to make the payments. And neither one of us could afford to do that.
We are now looking into buying our first park again but we are looking at 25+ MHPs so that if a few are vacant we can make our payments without money coming out of our pocket. Sure it will cost us more up front but will not hurt as much if a few are vacant.
There where other reason also but that was the main one. Now we are just about to makea few bids on a few different parks that we are looking at, and we are feeling more comfortable with our choice to wait and get a bigger park.
Good luck
Paul
If it sounds too good to be true, it probably is. Why would the owner want to carry paper when he could have all that positive cash-flow. There is something he knows that you do not.
Go talk to the tenants when he is not there. Talk with the City. Maybe the City is requiring on-site hydrants or better
fire access? Who knows. Do your home-work.
Best Riches,
Jeffrey Adam
[addsig]
Hi,
Just to keep you informed, I now have 4 out of 5 rented and the empty one is now totally remodeled. New windows, carpet, steps, paint, bathroom, etc. So it should rent easier than the rest. The rental market got flooded for a while and I had three sitting empty plus another one that I own, so I put up flyers, ran ads, and put signs in all the windows. So as for right now everything is looking up.
If any newbies are reading this looking for advice: MAKE SURE YOU FIGURE IN UTILITIE BILLS WHEN YOUR RENTALS ARE SITTING EMPTY. Sounds like commen sense but I didn't figure enough money each month and when they sit empty the utilitie bills sure add up fast.
Just wanted to keep everyone updated. Good luck with all of your investments.[ Edited by dkbj on Date 02/06/2004 ]
Thanks for the update. I am thinking of revisisting the idea of buying one that I had decided not to do. He wants $400,000 but I may offer him 350k next week. His is 37 lots. A beautiful first class park on the water, in the city, with all city utilities with their own meters. It is right next to a city owned senior center with shuffle board, tennis etc. He has owned it for 20 years and was happy with just half the lots rented. Never tried to fill the other lots. The numbers look very low cash flow wise right now since it is half full but the upside is large. Existing lot rents can be tripled to reach the current market and the empty ones can be filled. I have about 7 buddies at my country club that want to buy used trailers (one guy was a MH dealer for years) and pay to have them moved there, pay me lot rent and they collect tenant rent. They were going to do that with the current owner. I will have to approve all renters of course. Does this sound good to you?