Posted by Finance Guy on June 09, 2006 at 09:28:07:
Pam:
Lots of questions have to be asked/answered before you can move forward. Call 877-346-4276
Don Wilson (OK)
Help Please - New Investor to MHP - Posted by Pam
Posted by Pam on June 06, 2006 at 22:41:38:
Hello. I am a new investor to the MHP world. I have been doing a LOT of research - anywhere I can find it. (Books on order, but as one of the articles on this sight said - if I sit too long, it might be gone!!) I have looked at (literally) every MHP for sale with the criteria I feel comfortable with and found one that I think fits! Before I mess it up and potentially pay too much, I would TRULY appreciate the help of so many seasoned professionals. Details:
MHP: - 28 sp. (no park owned)
Lot Rent - 370.00 100% occ.
All city water & sewer billed to tenants
Cap rate (as listed before DD) - 9.59
noi (as listed by agent) 95,000
Expenses - 35%
Asking price - 990,000
IF applying the 60/30 rule that I have read about, the asking price seems to be SO far away from most every asking price out there! Are the deals that actually get sold and closed anywhere near the 60/30 valuation price, which can often be several hundred thousand dollars off? When applying the noi/cap rate method, (which I have used in commercial applications), the asking price is right in line. Hmmm…help??? Many thanks.
Pam
Re: Help Please - New Investor to MHP - Posted by Daphne Lowe
Posted by Daphne Lowe on June 08, 2006 at 23:30:51:
Pam, slow down. Read some more books before leaping. Even a cursory glance at the numbers shows this is no steal:
28 lots @ 370/mo * 12 mo = 124,000
expenses @ 35% (a reasonable guess estimate) leaves NOI = 80,500
debt service (693k, 7%, 20 term) = 65,000
cash flow = 15,500
cash on cash return (CF/downpayment) = 5%
Unless you’re motivated by some other reason (land play, future retirement activity, bragging rights, etc.) the risk outweighs the return. You could get similar yields in a 12 mo CD.
Daphne
Re: Help Please - New Investor to MHP - Posted by Chris Reuman (Maine)
Posted by Chris Reuman (Maine) on June 07, 2006 at 20:36:52:
You need to run an archive check on this topic.
Basically, you need to calculate the real income minus the real expenses minus your profit and back into your mortgage. The tricky part is knowing the real income and expenses. Both can be fudged by the seller.
When I hear about a park, I take the lot rent times a factor of 50 or 60 times the number of lots. ($370 x 60 x 28 = $621,600) This isn’t even close to what they want. Way too thin for me. I would pass. If my number comes close. Say they want $700,000, then I look deeper. The other problem you have with this deal is that their is no upside potential. I like to get upside potential for free. For instance, if this park was licensed for 50 lots or it had 10 empty lots.
The bottom line is that most parks are way too expensive. We have to avoid the desire to chase them.
Best investing, Chris
Re: Help Please - New Investor to MHP - Posted by Pam
Posted by Pam on June 07, 2006 at 22:15:18:
Chris, thank you for your help and insight. I was aware of the calculations and how to use them, it just seems that NOTHING out there even comes close to any of the asking prices out there when using the 60/30 calculation, unless there are park owned homes involved. That is not something that I am at all interested in at this time. Is there some type of ‘calculation’ that can be applied for a 9 - 10 cap, which is what I am seeing in MHP’s with no poh’s? Or do I just use the noi/cap to obtain the value?
Thanks again Chris.
Pam
Re: Help Please - New Investor to MHP - Posted by Chris Reuman (Maine)
Posted by Chris Reuman (Maine) on June 08, 2006 at 11:34:17:
That is my point. Parks with cap rates of 9-10 are not deals. Move on. That and cap rates down to 6 are retail. We buy wholesale. They are very hard to find, maybe 1-50 but they are great deals. Pass on this deal and keep looking. I find that you have to talk to the park owners and after you have talked to 30-50 of them then one will have a heart attack and want to instantly sell. Then you get a deal. They are motivated. If you are looking for a place to park your money, parks are not the right place. Too many management issues. Look into subdividing land, spec. building, or self storage facilities.
Best investing, chris
Re: Help Please - New Investor to MHP - Posted by Finance Guy
Posted by Finance Guy on June 07, 2006 at 23:13:11:
Pam:
Chris pretty much nailed it on the head…“The bottom line is that most parks are way too expensive. We have to avoid the desire to chase them.”
You can buy these low cap parks if all you want is cashflow. But if you want upside you have to find the undesirable ones that need work. Remember buy low…sell high. Maybe you need to partner with someone who has no funds but has time and the knowledge to turn one around? Ask and ye shall recieve. just my 2cents
To your success,
Don Wilson (OK)
Re: Help Please - New Investor to MHP - Posted by Pam
Posted by Pam on June 08, 2006 at 20:05:22:
OK…I’m asking!!! Maybe you are right. Maybe a partner with the knowledge is just what I’ve been looking for and didn’t know it! I usually shy away from any type of partnership, because they just don’t usually seem to work out. But the right park with the right partner…that just might work! Do you know anyone that fits the description?
Pam