Re: Mobile Park - Posted by ray@lcorn
Posted by ray@lcorn on December 21, 2000 at 09:48:47:
I can’t follow your math here. Using the actual operating numbers, the park will not cash flow even with interest only financing.
-$76,500 interest only on $956,250 @ 8%
-$ 8,820 cash flow
To make the debt service no more than $5T per month, the rate would either have to be 6.27%, or the principal reduced to $750T. Even assuming the $60T annual debt service, the net is only $7,680 per year.
I don’t buy property based on projected numbers, and it seems the expenses may be understated. Most parks will run around 35% expense unless utilities are separately metered. But even taking the existing expense amount (very wrong to do so), the thing still doesn’t net $3T per month.
=$18,315 cash flow, or $1,526 per month
Assuming $168,750 down (15%), and the terms you stated, the cash on cash return would be non-existent on the actual operating numbers, and less than 11% on the questionable projection. Plug in the numbers for a typical loan at 10.5%, 20 years, on the questionable projection and the debt service is $114,564, putting the project back in a negative cash flow. These are the terms you will dealing with on a refi, so the only exit would be to remain the captive of the seller. The likely outcome would be that you would in effect be managing this park for the real owner.
I would not go into such a deal hoping to take my profit on the appreciated residual value of the land. Closing and redeveloping a park is something I have done several times, and the costs are considerable. If the current land values in the area support the asking price on a raw land basis, then the best bet would be to close the park immediately rather than subsidize the operation for any amount of time. In sum, I don’t think there is a deal here under either scenario.