seeking advice on MH park purchase - Posted by Random

Real Estate Investing RV Parks
1

Posted by Random on April 13, 2003 at 19:42:01:

Thanks for your input.

As a professional tax advisor (as my day job), I’m well aware of the differences between the tax return and real life. I wouldn’t even need to see the tax returns on this dude. (and if I did, I doubt they would be even somewhat accurate :wink: )

Upside-- the only upside is that a neighboring lot could be purchased cheap and 10 more units added. The land has no real value in its current neighborhood or condition. I can stick a F/T live-in manager at the place; a guy who has been my client off and on for 10 years, so I know what he’s worth.

The biggest downside is maintenance over the years. Nothing is new, so obsolence is a bigger threat. Some trailers might have to be scrapped or replaced after so many years.

The rents are high, yes, but people seem to pay because there are no apartments in the immediate area! It’s also quiet…a feature the residents (all adult community) like.

Randomly

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seeking advice on MH park purchase - Posted by Random

Posted by Random on April 07, 2003 at 22:07:36:

Great board here…thought I’d see if someone had some insight into what I may be missing.

RV/MH park. All units park owned. approx 30 units total. +Coin op vending/laundry. Most units are repo’d or well used RV’s semi-permanently affixed by water/sewer connections. Common water/sewer/electric paid by park. Tenants are week-to-week or MTM.

Seller sez park grosses $14K/month, nets $10K before debt service, but includes taxes and insurance. At asking price of $500K, debt service estimated at less than $5K/month. Seller is on-site manager, but much maintenance is done by handy-man getting a discount on rent and some $$.

As Buyer, I would have to get an onsite manager, but half the comp would be free rent (in a fixed house, not RV). Maybe $2K cash out per month max. Rents collected weekly or fixed-income tenants pay by direct deposits 2 days after Social Security hits.

Here’s the kicker: Seller wants to retire NOW. Seller is afraid if he shows financials, the IRS will be after him! (apparently he doesn’t like to file accurate tax returns). Seller won’t let anyone see his books (not even R/E agent) unless there is an accepted contract. I;ve written due diligence items into contract, but seller is hesitant to sign. Sez his word is good as gold (he’s an old timer). We told his agent that his word don’t buy much java when a half million is on the line. Second problem is that the price is a bit high considering the collateral. Some justification made by the cash flow I guess. R/E Agent seems want to ignore offers that aren’t full asking price since the Sellers accepted a full price offer that fell through due to Buyer ineptitude (Buyer was not creditworthy and wanted Seller to finance the whole deal).

Most important: If Seller not willing to show his cards after a genuine contract and $2500 earnest money on the table, I am willing to walk…run from the deal. I’m sticking $250 option fee to kill the deal at any time any get back the remaining $2250.

THanks!

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Re: seeking advice on MH park purchase - Posted by JJ-IL-MI

Posted by JJ-IL-MI on April 11, 2003 at 22:58:14:

A few comments:

Is the 14K gross assuming all the “trailers” are full at one time and all monies collected are owed? Do you know if this ever actually happens? Even then the income sounds high…over $450/mo to rent a junky old RV? In your market are studio/efficiency apartments renting for $500+?

It’s not clear what utilities are paid by the park. Are you really paying for the electric used inside the “trailers”? In any event, all utility bills should be easily verifiable by looking at ALL old bills or (preferably) printouts from the utility companies. You can check many other expenses (scavenger, taxes, etc.) with no seller disclosure issues. If seller hesitates on these, RUN, don’t walk, away.
Some other expenses (landscaping, etc.) depend way more on how you will run the park (not how the seller ran the park) and numbers provided by the seller are meaningless here.

“Trailer” maintenance will be an unknown. While there’s not a lot to go wrong, and what does go wrong can usually be easily fixed by some local drug addict, things can/do/and will go wrong frequently. Speaking of drug addicts, you may be able to talk to the local police and see how many calls they take to the park. (Don’t hire the drug addicts to do the work)

Park infrastructure can be surveyed and you should be able to predict it’s reliability without depending too heavily on seller representations. Of course your prediction will in reality be a statistical distribution, but what you should be able to predict is an estimated “most likely” value and a somewhat higher value which you are fairly certain will not be exceeded.

I smile when you emphasize the word NOW in the sellers retirement wishes. Make sure that this is the kind of investment/job you wish to pursue. It’s not a job easily turned over to a low cost manager. May take some fairly heavy involvement on your part.

Is there any upside in future value of the land? At the price you’re quoting I doubt it would make economic sense to convert to land rent conventional MHP.

I do not believe you have to limit your RE purchases to buying only from honest sellers or those willing to provide IRS tax forms…(how do you know those are really the numbers filed anyway). The answer is to know your rental market, know your management abilities, and understand the expense distribution.