Posted by Tony Colella on January 11, 2006 at 06:41:53:
quite often sellers of small parks have a mixed use type property (stick built or duplex etc.) associated with the deal. This typically throws the numbers way off as the seller values the mobile homes by the income approach and the stick built units by what they (or some agent) believes the unit would sell for if standing alone.
The second common seller ploy here is to not include any management expense for themselves. You need to include a management fee, be it for yourself or others.
Lastly they underestimate the vacancy and uncollectible losses.
Work the numbers backwords.
Income less say a 10% vacancy and uncollectible factor.
Take out the taxes, insurance, utilities, trash, maintenance etc. and Pay Yourself First.
What’s left over is what can pay the mortgage at the end of the month. I call this the checkbook financing approach. Nothing matters more that what your check book says it can pay at the end of the month.
Using a financial calculator or amortization book, find out what that monthly payment can finance at a reasonable % rate under a 20 year amortization (most common for this type of lender financing).
This will tell you if you have a diamond in the rough or an alligator by the tail.
Tony