Posted by Kevin (OK) on August 05, 2001 at 09:19:27:
Got 'em. Thank you Ernest. Kevin
Offer price on small park - Posted by lyal
Posted by lyal on August 04, 2001 at 09:56:37:
OK guys, I’m in uncharted waters (for me). I’ve been made aware that one of the small parks I’m working in is for sale and I’m trying to see if it’s worth making an offer.
A little background first.
39 spaces in a small town about 20 miles north of here. Basically an older small bedroom community. No industry, shopping center etc. Owned by an investor who has a huge park and dealership 30 miles further north. He’s owned it about 4 years, made some minor improvements including a block storm shelter that looks like an earth bermed bunker. Could’ve paid a little more attention to the asthetics. No laundromat or store or anything. On site manager (only been manager for 2 months) gets free lot rent plus 300 a month.
39 spaces, city sewer and water, older homes (none park owned). Fully rented since I’ve been there (3 years). Lot rent is 217 a month (top of the market price no room to raise that for several years) includes garbage, sewer and water.
I’ve got a printout of the expenses for the last 3 years from the company accountant.
First question is…to figure a cap rate, does the NOI include depreciation or not cause its only a “paper” expense?
(Obviously not including any debt service in the following numbers)
Gross income 1999 - 90,194.19, expenses (inc depreciation of 14,385.01) = 48,797.76 (also includes “management fee” of 4800 to the owner)
Gross income 2000 - 96,326.54, expenses (16,436.38 depreciation) = 60,108.28 (inc 4800 mgmt fee)
Gross income year to date 2001 - 49,787.17 - expenses (8,305.80 depreciation) = 28,903.80
My nutshell analysis is that there is no room to increase the income by raising rents, no room to add spaces, some room to cut expenses (sub meter the water service?), no major improvements or code improvements needed (will verify). Could make an offer based on a good cap rate, pretty it up a little and ride it for a few years then sell.
The more often I reread this the less clear it is. Let me know if you can’t figure it out and I’ll try it again.
I realize there’s a LOT more due diligence needed but want to see if its worth doing.
Tear it apart guys!!
Thanks,
Lyal
Re: Offer price on small park - Posted by Chuck (AZ)
Posted by Chuck (AZ) on August 05, 2001 at 12:56:15:
I went back over the paperwork you faxed me again this morning.
Would I buy this park? No… at least not based upon the figures I’m seeing. Perhaps after doing the due diligance I’d change my mind, but I think not… at least not based upon it’s current cash-flow.
Ernest suggested doing a net-lease. That is one possibility, but I have a problem with paying a year’s worth of lease money in advance… the park’s numbers just don’t work that way for me.
I’d be far more inclined to consider it under a PACTrust… and if you persue it, that’s the way I think you should go.
Re: park - Posted by Ernest Tew
Posted by Ernest Tew on August 05, 2001 at 05:51:31:
Lyal, it sounds like this could be a good candidate for a net lease with an option to buy. The owner wants to be relieved of management on a small park but may be concerned about having to foreclose if he sells with a small down payment.
You seem to be concerned about the risks and getting in with a small amount of cash, but still having a positive cash flow.
The owner is currently leasing individual lots. Why not lease all of them to one person? He would probably feel more comfortable with a net lease if you offered to pay the first year’s rent in advance. You would have no further lease payments for 12 months. That should result in about the same positive cash flow as the current owner is getting.
The owner should be less concerned about a default because rent would be paid in advance. Since he hasn’t sold, he would have no capital gains tax to pay and could still take depreciation to offset most of his net income.
The term of the lease could be anything you and the owner agree to. Suppose it’s for only one year with an option to buy (on terms that you agree to)? That would give you an opportunity to try the investment out before buying. If you decide it isn’t good enough, you walk away from it. By that time, you should have all your money back. It could be that you have managed it for nothing–but even then you have gained valuable experience and avoided a bad deal.
If it turns out well, either exeracise the option or sell it to someone else at a profit.
If you hold the option in a Roth IRA, all the gain would be tax-free.
If you decide to make an offer to lease with an option to buy and need some excellent forms, let me know and I’ll e-mail the forms to you.
Good luck,
Ernest Tew
Re: park - Posted by Ernest Tew
Posted by Ernest Tew on August 05, 2001 at 05:44:33:
Lyal, it sounds like this could be a good candidate for a net lease with an option to buy. The owner wants to be relieved of management on a small park but may be concerned about having to foreclose if he sells with a small down payment.
You seem to be concerned about the risks and getting in with a small amount of cash, but still having a positive cash flow.
The owner is currently leasing individual lots. Why not lease all of them to one person? He would probably feel more comfortable with a net lease if you offered to pay the first year’s rent in advance. You would have no further lease payments for 12 months. That should result in about the same positive cash flow as the current owner is getting.
The term of the lease could be anything you and the owner agree to. Suppose it’s for only one year with an option to buy (on terms that you agree to)? That would give you an opportunity to try the investment out before buying. If you decide it isn’t good enough, you walk away from it. By that time, you should have all your money back. It could be that you have managed it for nothing–but even then you have gained valuable experience and avoided a bad deal.
If it turns out well, either exeracise the option or sell it to someone else at a profit.
If you hold the option in a Roth IRA, all the gain would be tax-free.
If you decide to make an offer to lease with an option to buy and need some excellent forms, let me know and I’ll e-mail the forms to you.
Good luck,
Ernest Tew
Re: Offer price on small park - Posted by Chuck (AZ)
Posted by Chuck (AZ) on August 04, 2001 at 12:13:55:
There really is only one question to be asked here…
What’s the park worth to you?
But I’ll play devil’s advocate and pose a few.
- What’s his asking prce?
- What are the terms?
- Is there a outstanding loan on it?
- Is the seller motivated?
- Is he willing to be creative?
- How long do you want to hold onto it?
- What could you buy with the same money, that would generate a larger return?
- Can you get the money, if a deal can be worked?
$8,463 gross income a month… it’s definately worth looking at.
E-mail me for my fax number, I want to see the paperwork.
Re: park - Posted by lyal
Posted by lyal on August 05, 2001 at 09:29:58:
Ernest,
Thanks for the suggestion. I would certainly appreciate the forms you mentioned. Planning on reviewing your “Help Others” material today also.
All the best, Lyal
PS: I think this is the same seller you purchased your park in Marshall from.
Re: park & leasing forms - Posted by Kevin (OK)
Posted by Kevin (OK) on August 05, 2001 at 06:12:15:
Ernest, I would appreciate a copy of the forms you mentioned. I’m looking at a small park today…22 to 26 spaces? The seller can’t recall how many.
I’m going to spend some time at the park, and see what’s really there. It’s not being “run” by the owner. but rather “run down” by the resident mangler…oops, I mean manager. I’ll post more info when I can.
Thanks for any help on this…Kevin
Re: Offer price on small park - Posted by lyal
Posted by lyal on August 04, 2001 at 12:48:58:
Chuck,
Somehow I knew you’d be the first to chime in… B-)
As far as what it’s worth to me, it’s only an investment. IF I could get a deal that would cash flow a couple grand a month into “Hip Pocket National” I’d do it.
As for an asking price, the only thing I can get out of him is “Make an offer”. You can tell he’s been doing this a while.
Pretty sure there is at least one mortgage, probably 2 on it but not sure how much. I’ll ask what he paid for it on Monday (and verify it with the assessor’s office) and get the info on what’s owed.
No he’s probably not real motivated but I don’t think it’s as profitable as his other operations so he just wants to get it out of his hair.
As far as creative, I bought one of his rental trailer’s in this park last year. Little 1972 14x60. Nice little place that he just wanted to dump. Paid him 2K with 500 down and 150 a month for 10 months, no interest. Exactly what I offered, no negotiation.
Any offer I make would be contingent on owner financing with small up front cash so what I could buy with other money would be pretty much moot I think. My cash on cash return would be pretty good. I’d like to have all my money back in the first year or so.
My suspicion is that he paid 400k or so for it, way too much in my opinion. Every one of these I’ve looked at here they start blathering on about “price per pad” etc. That doesn’t mean squat to me. I wanna buy the current NOI at a good cap rate. Willing to negotiate in exchange for good terms but that’s it. If they won’t play I’m on my way.
(One of Terry Vaughn’s statement’s at a seminar. “ONLY play by YOUR rules!!”…made a lasting impression on me).
Thanks, Lyal
Re: park & leasing forms - Posted by Ernest Tew
Posted by Ernest Tew on August 05, 2001 at 06:57:20:
Kevin, the forms will be e-mailed to you shortly.
Ernest
Re: Offer price on small park - Posted by Chuck (AZ)
Posted by Chuck (AZ) on August 04, 2001 at 13:21:50:
Yea… I am quick with an opinion aren’t I?
Actually, it should cash-flow into “Hip Pocket National Bank” at 70-80% of the gross, assuming it was clear deeded, and seperately metered.
Would you settle for 50-60%?
From day one?
With no money down?
And no new loan?