100-110 Lot PArk... Help on costs to buy...

[Adam Dorn]

So, I'm a bit confused as to how the calculations are going to determine if the purchase price of a park is ideal, or too high?

ANy help or links to similar posts?

Thanks

[Joe Hartman]

I'm not sure how far along you are in this deal, because the info you've posted has changed a little from post to post? Do you have access to the pro forma data, or the seller's actual income/expense?

If you're still waiting to put an offer in, you might not have all the info yet, and using the quick and dirty calculations might help you in getting in that initial offer. So (90 rented lots)*($300)*(12 months)*(0.6 to account for expenses) =$194,400. So if you're using a CAP rate of 10, that's $1,944,000... adjust those numbers if I put in the wrong # of lots. If you like to do it the other way... 90X300X60=$1,620,000. So those at least give you a starting point, to make an offer.

Before you come up with an offer number, some things to consider from the info that you've given...

Lot rent is $300. Assuming that is the cost just to rent the lot, you need to put that # in perspective. In some cities, that's very expensive, in others it's a steal for the tenant. So, is that low or high for that marketplace? You said that this place is close to 100% occupied, which typically means that as the new owner, you should be able to come in and push those low rent rates up. That's a great position to be in. But if that's high or right at your lot rent comps, then you might not have that option. If this is the case, you're out the easiest way to make money on this deal (or not lose money if you screw it up or something unexpected happens).

You'll also want to get estimates on what it will cost to get the park sub metered and bill back the utilities. Just another way to improve your NOI by decreasing your cost... but be ready for the upfront cost to convert it.

You're very lucky to have someone that knows the business. If you get it under contract, show him/her the seller's numbers and make sure they are consistent with what it cost for you to operate the park. Get some estimates from plumbers, electricians, pavers, lawn services, snow services, landscaping, etc. to give you estimates on up front repair cost and what it will take to maintain the park. Talk to lenders to see how they'll evaluate the park. Maybe they'll only lend on the park as a CAP 12, not a CAP 10 like you planned on. Things will probably need to be questioned/adjusted as you go along. You'll need to build a case as to why you have to adjust your offer, just like anyone else would that is going to buy their park.

Let us know how things are going.
Joe