Evaluate a 118 mobile home prk

[Frank Gossman]

Hi Everyone: This is for Jim Johnson or any other mobile home investor. On the forum analyzing investor deals could Jim and others go to this forum and let me know what you think of this deal
I'm looking to offer $3,500,000 assume payment and offer the mortgage holder 300,000. Thanks all and I look forward to your thoughts !!

[Jim Johnson]

Originally posted by Frank Gossman:

Hi Everyone: This is for Jim Johnson or any other mobile home investor. On the forum analyzing investor deals could Jim and others go to this forum and let me know what you think of this deal
I'm looking to offer $3,500,000 assume payment and offer the mortgage holder 300,000. Thanks all and I look forward to your thoughts !!

So all the info is here... this is the post from the other part of the forum...

Hello Everyone: Please let me know what your thoughts are.
118 unit 55+ mobile home park suncoast of florida spaces occupied 109+ all amenities (no pool).
Made no offer yet
Asking $ 4,500,000
DN $ 1,850,000 to mortgage holder
assume $ 2,650,000 note at 5.95% / 30 term ballon due 2012
GOI $ 498,432.00
NOE $ 200,373.00 = 41.5% +/- GOI
NOI of $291,843.00 less sellers dept service of $ 162,108 $ 13,509 pr/mon
Cash flow $ 129,735.00 or $10,811.25
There is on site laundry, rents are below market, rec.hall,shuffleboard and more.
cap is 6.49 in this area not unusal
There are a few things that can be done to increase the NOI right away to approx. to $ 65/$ 100,000
I personnally feel it is over priced but I would like all your thoughts.

I would appreciate any input you all have to offer and Thanks in advance !!

So to start with I think you better really know your exit strategy. And like it or not, you need to opt out or refi this park in 2 years. So you have 1 year to do what ever your going to do so it looks better, because you will be starting the refi in early 2011 to be done in time. If you overpay, you will be bringing cast to the refi... First off, in today market what is a fair CAP rate for a 3-4 start park in Florida. You might check with some of the local and national lenders, as well as a few CCIM or MAIs that work your part of Florida. I am just going to guess, that 6.5 CAP will not hold. Money is too tight, and CAPs are too high in the other investing markets for this to refi at 6.5. If I were looking at this deal, I would buy it with the owner financing just as if I was going at it with the bank. then I would take the year to lower expenses, fill pads and stabilize the rents. So off the bat... this is a dangerous deal. Your putting lots of money into a property with a fuse that is not just lit... but ready to blow. In my mind, if the financing has to stay with the park it bumps the CAP by several points over the market CAPs because of the lending uncertainty in the market. Enough said about that...
So lets start with the scope of this deal... on a first glance the down-stroke looked large, its 41% of the purchase price. This deal will have to scream upside for that kind of down stroke... at least for me...

Expenses are spot on at 40%. I will guess, the water / sewer / trash are paid by the owners and you can sub-meter. That should buy you back 10-15% of the gross at a nominal cost... maybe $150 - $200 per pad.

So that might bump your NOI to $375,000 or so... and maybe the rents are under market, I do not know enough to go down that road...
If that 6.5 CAP held- you would price out at 5.75ish million. If that cap held... If your CAP was something closer to 8... you would cash out at 4.68 million...

If you pulled the trigger at 3.5 million, you would stand to make 1.18 on the sale, unless you had income to add in addition to reducing expenses... At $300,000 down that would be a good buy.... if money was available- you would be looking to refi at about 60%, and if the income and expenses were stable that should be available. If it is not... you have a big problem.

One last thing here... CAP rates tend to track interest rates... so if we can assume interest rates will be higher when you refi, than there were when this park got its last financing you might need to be more aggressive on the buy side. If a property today with a 5.5% interest rate sells at a 8 CAP- that is a 2.5% bump over the interest rate... and if you got financing on the park today... and I am a bit blind here but lets say it would be 6.5 or 7%... less if your in a conduit loan... if you can get one... so 6.5 + 2.5 is... 9. I bet that argument could be made with some good supporting information coming from some lenders... No matter what the upside- you better buy this sucker as if the market will be harder to get financing, CAP rates will continue to bump up, and banks will continue to look for more favorable debt to value ratios... without the income increase you would bring some serious cash to the refi... The low down might serve you well today, but eat your lunch 18 months from now.
Be careful handling a grenade with the pin pulled and the trigger let go of...