Posted by Chuck (AZ) on July 23, 2001 at 21:54:39:
Yes. I was assuming that you’d count it as an “expense”, when I wrote that response.
Questions on MHP - and which book do I need? - Posted by Dale
Posted by Dale on July 23, 2001 at 08:25:50:
I’m buying the books today, but I’m not sure which one to get. We are looking at investing in Mobile Home Parks. Are Lonnie books the first to review?
We have found 2 mobile home parks with the following details:
1st park
23 spaces on 4 acres (5 additional acres not developed). Total park zoned for 35 spaces
12 spaces rented out at $150/month
city water/sewer
2nd park
20 spaces on 5 acres
10 spaces rented out at $150/month
holding tank - will be available to be on city water/sewer next month.
3 empty park owned mobile homes
Total asking price for both parks $420,000. Agent said owner will probably take $350,000. These parks are owned by a 79 year old woman (actually were her husband’s who passed away) who lives out of state. There has been no management of these park in years. They need some cleaning up… The owner will finance 85% at 8.5% interest for 20 years.
Any thoughts. I’ve read about the CAP, but really haven’t been able to figure it out (I need the books).
Dale
Re: Questions on MHP - and which book do I need? - Posted by Dale
Posted by Dale on July 25, 2001 at 09:39:08:
Thanks for all the posts. I did some calculations and finally figured out the CAP.
I’m thinking about offering $206,400. That will put me at a 12% CAP. This will also keep my payments reasonable. I’m even considering asking if payments can be started in 2002. This would give me a little extra cash to clean the place up… I think she is wanting to get rid of these quickly.
Other suggestions would be greatly welcomed.
Thanks
Negative cash flow ! - Posted by roundhouse
Posted by roundhouse on July 24, 2001 at 20:09:48:
You wanna pay $350K for a park thats grossing less than $3k a month?
It wont even pay the debt service.
and those spaces are really rented out for $100 a month
they are $125 and there is a $25 discount for paying on time. So if they pay on time its only $100the agent is reaaaaaaally stretching the truth here.
22x$125=$2750 Gross
debt service of $2577 plus taxes, insurance, fix up costs, etc, etc, etc, if your expenses are more than$173 a month you are paying $52K for the priviledge of losing money each and every month until you get it turned around.
Ask the agent for last three years tax returns, they dont have em.
the gross figures are ESTIMATES. They told me the expenses for 99 were $15K and for 98 were $450 which is gonna be your avg?
The agent told me they were not even sure how many trailers the park owned, maybe 3-5.
His ad says “13% CAP walking in” which is an out right LIE. walking in there is no cap, ad should read "IF park were full and rents were raised $50 a month."also says 26% cash on cash return which is an out right lie, since if you paid their asking price for the half empty parks you would be losing money each month.
Re: Questions on MHP - and which book do I need? - Posted by Chuck (AZ)
Posted by Chuck (AZ) on July 23, 2001 at 11:22:52:
“Deals on Wheels” and “Making Money with Mobile Homes” are both excellant, and would be fine IF you we’re only going to do “Lonnie-deals”.
However, if you seriously thinking of buying a park (now or in the future), I’d get “Dealmaker’s Guide to Mobile Home Parks”, followed by “Getting Rich Helping Others”.
Ray’s book is more rounded, so I’d give it the edge. Ernest’s is more geared toward turn-around situtations.
It MAY sound like you need the latter, but the former would be more educational and useful, if you have no prior experience in running a MHP.
As to the CAP rate… I’ll probably get some flack for this opinion, but I (personally) don’t think that’s a valid indicator of a properties past performance or potential.
I say that after having looked at dozens of properties recently with a 10% CAP. Long story short, the numbers don’t always support it… and can be manipulated to to reflect it too easily. I’ve seen a trend developing for some time now… using the potential of a property to value it’s worth.
A more accurate indicator, for me, is the ROI/NOI~Debt Service. If those numbers don’t work, I pass… potential or no.
-
Determine the purchase price of the property, NOT the asking price. Amorize that over 30 years, and again over 15 years.
-
Determine the current income of the property after expenses.
-
Subtract #2 from #1 (both terms). Is there money left over? Enough to support repairs/improvements AND for you to live on if needed?
If the answer to any of these questions is no, I pass.
Note that regardless of what anyone will say about MY method… I’ve yet to regret ANY decision I’ve made, using that formula.
Enough said.
Re: Questions on MHP - and which book do I need? - Posted by Robert (NC)
Posted by Robert (NC) on July 23, 2001 at 10:40:49:
I just got Ray Alcorns ‘DealMakers Guide to Mobile Home Parks’ It has a very good section about how to figure out what to pay for a park. Explains all the NOI and the CAP rate, etc… Has another very good section on Due Diligence and what to look for when expecting a park…
Robert Robinson
‘looking for that first small park to get started with’
Re: Questions on MHP - and which book do I need? - Posted by Eric C
Posted by Eric C on July 25, 2001 at 14:53:37:
Hi -
Be careful when asking to delay payments; you might just get your wish. Make sure that the interest clock hasn’t yet begun to work against you.
Even a short interim period of no payments can set you back considerably if you aren’t paying attention (not to mention interest or principal :-))
A good strategy would be to split the down payment requirements (say, six months between installments) with interest to begin 30 days (or more) after the last installment of the D/P.
Even better would be to have a short period of zero interest while the payment schedule continues. (I just completed a deal like this).
Do the math as well as your homework. You may be pleasantly surprised.
Good luck,
Eric C
PS - you might also want to try to have all the improvements you make during the first six months (or year) credited against your D/P.
Re: Questions on MHP - and which book do I need? - Posted by Charles K. Clarkson (TX)
Posted by Charles K. Clarkson (TX) on July 23, 2001 at 19:48:45:
Er, wouldn’t you want to subtract the amortized amount from the current income? (#1 form #2?)