Posted by Joe on July 02, 2004 at 22:56:34:
Ray,
Thank you very much for all your time and advice.
Your last response was especially instructive. As it is now though, we are out of the deal…for better or worse…This was never the less an eye opener and a great learning experience (good practice for the deal that’s supposed to happen).
I’ll be watching your discussion as always.
Thanks again for all your help.
Joe
Ray’s the Man again… - Posted by Joe
Posted by Joe on June 09, 2004 at 24:29:47:
Ray,
You probably don’t remember helping my brother and me buy a commercial property a little more than a year ago…but I sure hope you got my messages of thanks.
After feeding the building for the last year, it looks like things are now going our way…your help is very much appreciated.
Well…here we are again…having to move fast and make an offer quickly (already someone’s said they’ll buy it if we don’t), this time on a mobile home park.
We have someone in mind for managing it but needless to say, we know nothing about this new scary animal…We’re just thinking it looks to good to be true but hate to pass up a rare opportunity.
With a N.O.I. of $179,432.33, and using your DCR @ 6% interest for 25 yrs. and 80% financed…it looks like we could pay $1,993,692.55 for a 15% return on our 20% down payment.
Since they’re only asking 1.8 million, we are probably missing something…do we have to replace old homes with new ones?
Anyway we want to offer 1.4 (for room to move) just to get it under contract very soon since others are now looking interested also.
The only other problem is I don’t have enough money for all of the down payment yet…but I remember someone saying that if the deal is good, the money will come. I’m thinking of where to look for a hard money lender now.
I’m probably moving too fast, but it’s hard not to jump in with both feet after our first deal worked.
As always, any input (from everyone) would be greatly appreciated.
Thank you again,
Joe
Re: Ray’s the Man again… - Posted by ray@lcorn
Posted by ray@lcorn on June 09, 2004 at 16:46:16:
Joe,
Is this Joe from Tucson AZ? With the office building? If so, glad to hear it went well. If you’re a different Joe, then you’ll have to refresh my memory!
There isn’t enough detail to really tell you anything about the park. Get it under contract at whatever price, contingent on verifying the income numbers as stated. Then go to work verifying all actual revenue and expense items in order to nail down the NOI for certain. That’s where most “too good to be true” deals turn out to be just that. If its a pro forma income statement then you’ll have to get the real numbers before you can really know what you’re dealing with.
The debt terms you used are probably too optimistic unless that’s a short term bank loan… even then they usually like no more than twenty year amortization, and most try for fifteen.
When you know more, post it here and we’ll help you analyze it.
ray
Re: Ray’s the Man again… - Posted by Joe
Posted by Joe on June 15, 2004 at 18:42:51:
Thanks for writing back Ray…Yes, this is Joe from Tucson, AZ. with the office building…Your memory is as good as your advice.
I did get some more firm numbers ($410,733.01 Income…$242,271.02 Expenses). I’m also hearing that there’s another offer on the table for $1.5M w/ $550,000 down.
The seller’s husband died and her daughter ( who manages the park ) has to move as her husband is being stationed elsewhere.
I guess one of my main problems soon will be how I can compete with this other offer if I can’t come up with $550,000…The seller does want to carry back financing…doesn’t want all cash…needs the cash flow…but also needs $550,000.
Do you think anyone would be interested in taking a second right off the bat?..My only chance here is to try for one of those “no money down” deals I guess and look for a hard money lender, although I get the feeling I’m already out of time.
Any thoughts?
Thanks for everything,
Joe
Re: Ray’s the Man again… - Posted by ray@lcorn
Posted by ray@lcorn on June 22, 2004 at 12:20:46:
Joe,
Sorry for the delay in getting back to you on this… are you still in the deal? I meant to ask you for details about the nature of the park, but if the other buyer got it under contract I suppose that is a moot point.
ray
Re: Ray’s the Man again… - Posted by Joe
Posted by Joe on June 22, 2004 at 21:49:57:
Ray,
Thank you for your response. Yes, we are still in the deal…it’s a strange situation…there’s only the one other buyer involved, and I guess no one trusts him so they’re still working with us…it’s not under contract yet. The seller countered the 1.5M he offered with $1,550,000 and hasn’t heard from him since.
This park is in Nogales, AZ and I haven’t seen it yet. But it has 117 spaces all full with a waiting list to get in. About half the units are park owned. I just got a fax that I can’t read from the broker that was color coded (black outs on my fax) as to which were park owned and what the rents were, which had gas and electric etc…I’m trying to separate the land from the homes with harder numbers, but will have to wait until tomorrow to get a better copy.
I tried a preliminary analysis following “JohnBoy’s” excellent post on Jul. 09, 2000.
I figured 141,600 gross annual rentals, 163,817 for the dirt but there’s 105,315 in other income that I didn’t know what to do with so I saved it till last.
This other income includes interest income,stock holder interest income, utilities fees, sewer/refuse, and water sales (there’s well water and when that runs out we pay for city water.).
The expenses are 59% of everything and I figured 5% went on maintenance of the park owned homes…54% of 163,817=88,461. 163,817-88,461=75,356 N.O.I.
With a 14% cap that would be worth 538,257…plus about 118,000 if I would pay 2000 for ea. p o home…So that’s 656,257.
Now for the other income of 105,315…that income would be worth 752,250 at a 14% cap (I don’t know if I should be treating this like land), so I added the 752,250 to the 656,257 for $1,408,507 and consoled myself that our offer of 1.4M was good.
Am I even thinking about this right? I guess if I’m close, my major problem is still coming up with 550,000 down. Would anyone think about taking a 2nd right off the bat? My credit is good (757 middle) but if the property won’t secure it right away I guess hard money’s my only answer…not having any luck there yet either…not looking in the right places or hard enough I guess.
I know you’re very busy but appreciate all and any of your opinions whenever I can get them.
Thanks,
Joe
Re: Ray’s the Man again… - Posted by Matie Worden
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Re: Ray’s the Man again… - Posted by ray@lcorn
Posted by ray@lcorn on June 23, 2004 at 11:25:17:
Joe,
That “other income” is troublesome, but the portion that is from utility fees and sales would be considered additional rent for the spaces. The interest income and stockholder income would not be counted.
On the maintenance, I think probably half of the 59% expense figure is likely attributable to the rental homes. There is not only maintenance expense for the homes to consider, but also taxes, insurance, bad debt and collection expense, and not to mention the heavy management load of keeping them full.
Using your numbers, I would value it this way:
$163,817 gross space rent
$100,000(?) other income, not sure how much is utilities
$263,817 gross
-$92,336 35% expense, spaces only, subject to verification
$171,481 NOI/14% cap rate (your number) = $1,225,000
Plus the value of the rentals at $117,000 (your number), for a total value of $1,342,000… we’re at about the same place…
All said and done, in a deal like this the real question is what kind of investment plan you have in mind. If you approach it like the park in the post above to Clinton (post titled “ok Ray, now what”), you’ll want to position the park for a later sale or refi at more normal cap rates. That can be a good plan, but it takes some thought. Take a look at my response to that post and think it through in terms of this deal.
As to raising the money, I would approach your present lender(s) and ask about them doing a short-term (3 years or so) cross-collateralized credit line acquisition mortgage to allow you to get the property stabilized (i.e. the investment plan, whatever that turns out to be), and then plan to refi them out of it within three years. If you have equity in other property and a plan for this property, and you’re in the right kind of bank, then this is the type of deal small banks are made for. Not sure how far away Nogales is from you, but if it is too far for your local bank, find a small independent bank in the same town with the park, put together a great business plan, and go get a loan!
ray
Re: Ray’s the Man again… - Posted by Valerie Caswell
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