Posted by Hutch on August 26, 2002 at 21:54:01:
I should have noted that although investigated several months ago I decided at that time to wait and see what would happen. Today the realtor contacted me and noted that the owners are willing to consider splitting the park into two parks in order to sale and asked if I was still interested.
MHP - Posted by Hutch
Posted by Hutch on August 26, 2002 at 21:37:44:
Several months ago I investigated a MHC, it consists of 179 lots all but one are single wides with 10% vacancy. Rent is 125/ month. Water is submetered and charged monthly to the tenants. there are no park owned homes. Expenses are taxes 22,363; electric 1200, phone 1800, insurance 2722. park repairs 9827. The owner has had offers of 2.8 to 2.4 million. He desires 20% down and will carry financing mortgaged 20 years at 7% with 8 year ballon The owner appears willing to accept somewhat less but insists on an eight year ballon which has squelched the previous offers-He wants to be entirely removed from this business by age 50, therefore the 8 year balloon time frame.
An underlying note of Approx 985,000 is assumable at 8% or can be wrapped with the amount mortgaged at 7%. There is no on site manager and it is about 75 minutes away.
I have no experience running MHCs.
I am a partner in a successful business with moderately high income. My business requires about 2100 hours of my time per year but allows generous time off. I have invested in the past with no hands on responsibility and poor outcomes. I am desiring passive income to someday replace my present income and more control in the day to day operations where I invest.
I would appreciate constructive feedback, particularly in regards to the plausibility of the MHC purchase and management.
Re: MHP - Posted by ray@lcorn
Posted by ray@lcorn on August 27, 2002 at 20:36:08:
Hutch,
I appreciate where you are coming from, and I applaud you for realizing that you need control of your investments. I’m the same way, to the point of being known as a control freak. I just don’t do very well with other people spending my money without my knowledge.
Couple of questions:
As to the deal, what is the price?
What is the latest year’s net operating income?
What is the maturity date of the underlying note?
As to the property:
What condition is the park in? (deferred maintenance?)
What rate and occupancy is the rest of the market at?
With the answers to those questions you can determine a few things.
First, you need to know the NOI in order to evaluate the deal with a fee manager. You’re an hour and a half away with a full-time business. You don’t need another job, and you don’t want to hire someone to train you to be an owner. Once you have the income numbers, call around some local management companies and check their fees so you can make an informed decision about the return you can expect. Absentee ownership can be very profitable. Absentee management however is almost always a disaster, especially with this size property.
I’m curious about the terms on the underlying loan just to see how the math works with the rate cut for the wrap. That’s an interesting twist. Don’t worry about the 8 year balloon. That’s not an issue.
You need the knowledge of any deferred maintenance issues with the park for the same reasons. Those improvements must come either out of your pocket or from operations, in either case they won’t be returns. Know what you’re buying.
Finally, I don’t buy any property until I understand where it fits in the market. With ten percent vacancy there is some slack in this market unless this property is hindered by location or something else. If so, you need to know.
Let me know the answers and we can walk through a valuation based on your investment parameters.
ray