Cart before the horse…(Long) - Posted by Tony-VA
Posted by Tony-VA on November 11, 2000 at 10:08:51:
Please take this only as constructive criticism, not a personal comment.
From your short post, I assume that you have not engaged in much research on how to value a mobile home park. I could be wrong, after all, we know what happens when one assumes…
If however the assumption is true, let me suggest a few ideas. I hope that your offer allowed you some sort of escape clause if the numbers the agent gave you do not meet your criteria (or some other safety measure to get you out if the deal is not wise).
Asking price is no indication of value. So we can rule that out. “To good to be true” may very well be true. We won’t know until the due diligence is completed and the park is valued properly by the REAL numbers, not those quoted over the phone.
Based upon your follow up post, this is a transient park with short term rentals. Typically this is very high maintenance and should bring lower value. The more I have to work, the less I value anything.
You need to start with educating yourself. An attorney may be someone to contact, (but not necessarily about running a park unless they own one). I would have suggested speaking to an attorney before you made the offer so as to better protect yourself.
Ray Alcorn’s material is outstanding. He has a section on “due diligence” that is extremely detailed. Because of this, it will put you in the driver’s seat. His book will give you the education to buy parks as a player instead of a gambler. His material can be purchased on this site. If you have not already done so, post your question on the commercial forum here that he hosts.
Parks must be valued as commercial property. There is much more involved than simply estimating the income and expenses. As Ray will teach you, factors such as Zoning, Planning Commissions, Environmental Issues and liabilities etc. will come into play.
Ray breaks park valuation down to a math formula as well as an analytical investment vehicle. He can value a park now, value it after he works on it and see how to make a spread in between that covers his back side during the interm.
As Terry professes, make your money going into the deal. Limit your financial and legal exposure. Education and due diligence homework will protect both you and the deal.
Many people will look at Ray’s due diligence and think, “I don’t need to do all of that”. Well the truth is that that items on that list made the list for a reason. Why not put his many years of trial and error to work for you?
Make a sound, educated investment, not an emotional one. Emotion is gambling in my opinion. Don’t go into the deal thinking, “I can manage this park better”. We all think that. Guess what? The current owner said the same thing.
Value the park from it’s current numbers and condition. Value it from the position in which you intend to manage it. Buy it only after detailed investigation proves it to be a good deal. Don’t purchase someone else’s headache unless it makes you enough money to cure your headache.
Best Wishes,
Tony-VA