Ernest or Lonnie MH Park Question - Posted by Jim Pack (GA-FL)

Posted by brad on April 04, 2002 at 12:34:52:

i have a few good books i got from books a million, the complete guide to real estate investing and all about r e investing. the formula to figure it out is this: theoretically with a cap of 10, an income stream of 100000 per year is worth 1,000,000. to figure it you take the income stream and multiply it by 10 years it gets pretty in debth so ill keep it short on the site but ill be glad to send it to you if you want it.

Ernest or Lonnie MH Park Question - Posted by Jim Pack (GA-FL)

Posted by Jim Pack (GA-FL) on April 03, 2002 at 12:43:42:

Would you guys consider this park a good deal or not?:
Price: $575,000

Zoned: BU-1, Currently Used as Trailer Park, Trailers are ?grandfathered?. Total lots available for lease: 45 (includes a duplex apartment)

Onsite laundry facilities

Current Monthly Gross Income: $11500 (laundry: $300; late fees: avg $200; rents: $10700 $245/mo lot rent (increases to 255/mo 6/1/02); trailer mortgages: $300) Monthly expenses (not including debt service): $3785 Yearly Net Operating Income (assume 7% vacancy factor): $94343 Sales Price per lot: $13500

Acres: 1.91 acres

Mortgages on four Trailers (aprox. $5000) are included in sale as well as one trailer on lot #234.

Property is a cash cow selling at 5.25 x Gross with a 12.5 cap rate???Best cap rate (12) of any income property at the Beach!

Any advice appreciated. BTW, what is a cap rate of 12?

Jim Pack (GA-FL)

Re: Ernest or Lonnie MH Park Question - Posted by brad

Posted by brad on April 04, 2002 at 09:25:57:

if you are asking what a cap rate is then someone else did the homework, go over the numbers yourself and determine if it is worth it to you. this info came from the pm. check it out for yourself because something is not right. if it had a 12 or even a 10 this deal would already be gone.

Re: Ernest or Lonnie MH Park Question - Posted by Jim Pac (GA-FL)

Posted by Jim Pac (GA-FL) on April 04, 2002 at 11:32:31:

Yes, this ad came from the classifieds. I don’t know anything about buying a park, hence the question. When I divide the number of home sites by the price, I get one of the lowest prices per lot that I’ve seen in parks advertised online. I am looking to try and have an experienced park investor look at this particular set of numbers and give me an idea if it’s good or bad. Just trying to learn something about the process. Thanks for your input, even though I still don’t know what a “Cap” rate is. You said that if it was a 12 or 10 it should be gone by now. It just came on the market with a price reduction, according to the ad. Any more info is greatly appreciated.

Jim Pack

i lied ill post it anyway - Posted by brad

Posted by brad on April 04, 2002 at 12:50:27:

this is a pretty good formula c+y-I followed by R+y-(MC)

C is a constant or a coefficient
Y is the desired yeald to equity (Cash invested)
M is the percentage of loan to value
i interest rate of financing

it works like this

you want to buy the park
there will be a 75 percent new loan in place at closing
interest rate of 8.5 percent
you are willing to buy the building only if you can yeald 13 percent on your investment

what then is the cap

c+y-I or c=13-8.5
therefor c+4.5
then r+y-(mc) or R=13-(.75x 4.5)
therefor, r+13-3.38 or 9.62 percent (thats the cap)

to value the investment you will take the net income (before expences) and divide it by the the cap you are looking to produce. and that is how its done. don’t go by there figures, first they don’t know how much you have to invest, second they don’t know the interest rate on your credit, third they don’t know what you plan to do to improve the property. and a cap is only as accurate as you make it and it does not account for expences. cap could be any number and is only used to figure value. don’t count on it because the bank won’t when they appraise it for a loan.