ok Ray, now what............... - Posted by clinton grim

Posted by ray@lcorn on June 23, 2004 at 11:01:37:

Hi Clinton,

Good to hear from you and that things are going well.

The existing appraisal will have no relevance after you do improvements. After you’ve increased the NOI then let your future buyer do their own valuation.

The end value of the park really depends on what you do with the park owned homes. As you can see from the appraisal you have, the cap rate goes through the roof when you mix the asset types (i.e. spaces and homes). If it were me, part of the improvement plan would be to convert the rental homes to owner occupied units with Lonnie deals. Then when it comes time to sell or refi, the park would be valued solely on space income, and the notes for the homes valued separately.

The numbers MAY look something like this…

54 spaces, say 49 occupied, @ $150 per month (more after improvements?) My guess is that once you do the improvements the space rents can increase, which increases the value of the park accordingly, but I’ll use the existing rent just to show you how it works.

49 x $150= $7,350 per month x 12 =
$88,200 per year gross
-$30,870 minus 35% expenses
= $57,330 NOI

Say it’s valued at a 9% cap (could be lower)
$57,330/.09 = $637,000

Then say you had notes on the 22 homes (maybe less because maybe some are rough and should not be there?). Say the average face amount of the notes is $7,500 (pure guess, I have no idea what the homes are worth), with terms of 12.75% (industry standard!), for five years. That’s an income stream of $3,733 per month, $44,798 per year, almost as much as the park. You might decide to keep the notes as mailbox money after selling the park, or sell the notes to the new owner as well. I have no idea what they would sell for, but I would bet that it would be upwards of $100,000. That gets you above the number you want, makes the park a lot easier to sell and finance, and gives you the option of keeping the note income. Sounds like a win/win/win to me, or…

Say after you improved the park and converted the rentals to notes you decided to keep it and refinance out of your fix-up loan. With a value of $637,000, a 75% LTV loan would be $477,750, and say its at 8%, 20 years, with debt service of $47,953.

That pays off the $350,000 (actually less because of the mortgage paydown during the fix-up period), and puts about $127,750 in your pocket (plus the accrued mortgage paydown), and leaves you with about $10,000 per year cash flow from the spaces plus the $45,000 note income, and you still own it!

Ahhh, decisions, decisions… like how much money do you want to make? (smile)


ok Ray, now what… - Posted by clinton grim

Posted by clinton grim on June 22, 2004 at 20:35:19:

i have the 54 space park,with 22 park owned (po) homes that you advised me to obtain local bank financing.
great news!!i have a loan for 350k. (they want a list of park improvements for each dollar loaned over the payoff so i wont go to hawaii on the money i guess.)
so thanks! great advice.
problem, i have an appraisal for 450k (land and homes)and my goal is to sell the park once the renovations are done.
current NOI is 87k (including po rents)
i estimate that new NOI (after fixup)will be 100-120k anually.
my question-AINT NO WAY IM TAKING 450K FOR 100K NOI!!

remember im selling not buying… what do i ask now?
im thinking 700k (17% cap with po rents)…
is my park unsellable???
PS. sorry for being long winded…
PSS.lot rent is 140-150 (you always need that number)

Re: ok Ray, now what… - Posted by Reva

Posted by Reva on June 29, 2004 at 21:47:53:

FYI, there is a park on 3.7 acres with 40 lots that is listed for 975K with about the same NOI (100K). In Florida 55+ park.