Posted by Ruben (KCKS) on July 11, 2007 at 11:12:14:
Sorry this came to me after I posted the 1st msg. Why not do a triple net lease with an option to buy the park once you turn it around. This would get around the loan assumption issue for now and once you turn the park around the bank should have no issues with your taking over the loan. You would have increased the income and you would also have a track record of successfully running the park.
Ruben D. Flores
816 918-9041
Good deal? - Posted by ivan
Posted by ivan on July 10, 2007 at 12:51:14:
We are buying a mhp in Florida. Here is the deal: $950K with 27 park owned mobile homes and 5 lot rentals and 1 cottage and one empty space (already conformed for use). The park has 3 vacant homes and one more which needs to be fixed and 2 being evicted and the seller is absentee. When he bought the place, it was turning a profit ($145K per year with $50K expenses without loan payment) and after a few years, the manager moved out and he hired a new manager and the park started losing money because he didn’t collected enough and spent alot of money on dumb things. Now we have a contract to buy it $300K down and seller carry $200K and we assume his $450K loan at 7.75%. But the bank just informed us that they don’t like the second mortgage because the park is losing money and they don’t think we can pay the additional expense. Right now, what do you think we should do? Try to talk to the Seller about lowering the price (we negotiated the contract before and he didn’t go for it) or to carry a second without notifying the bank. Do you have any further suggestions? We believe when we purchase the park, we can lower the expenses drastically and they are raising the rent in September and we should have a gross income for next year of $180 plus installing water meter and lowering the garbage expense. Do you think this is a good deal?
Re: Good deal? - Posted by Ruben (KCKS)
Posted by Ruben (KCKS) on July 11, 2007 at 10:56:41:
Ivan,
I have a couple of observations and then I have a couple of questions about your deal. Observation 1 is that based on your income and expenses I assume you are purchasing the park at a 10 CAP rate. Observation 2 I am assuming that the 450K loan has a P&I debt service of $3,694.27 (20 year amortization based on your 450K loan number at 7.75%).
My bigest question is how was the park losing money. The annual debt service based on my figure above is $44,331.24. If you add that to your expenses of $50,000.00 you get $94,331.24. So the new park manager would have had to have been spending more than $50,668.76 for the park to lose money.
Another question I have is how the income for the park is being calculated. You have stated that there are 27 park owned homes and 5 lot rent homes. Is the income you listed based on the rent from those park owned homes? If it is you may be really, really, really overpaying for those homes. When I divide out the number of park owned homes and lot rentals I come up with $377.60 per pad per month (this is without the cottage). So it seems as though you are valuing the park with lot rent only. If not you may want to rework your numbers.
If the banks main concern is that you can not handle the debt service why not just structure the second loan in a way that the park will show a break even or positive cash flow. Example 2nd mortgage for $200K 8% interest with no payments for 48 months, then interest only for the next 36 months with a ballon on the 5th year. You could then explain to the bank of what you are going to do to turn the park around and the terms you are negotiating are giving you the time to do that. The seller still gets his price. Remember to put a right of first refusal as condition of the 2nd mortgage so you get first crack at it if the seller ever needs to sell the note. Good luck with the deal.
Ruben D. Flores
816 918-9041