1st Commercial Real Estate Deal

[Michael Meeks]

I'm working on my LOI, for a Mobile Home Park. I've run some numbers and looks like their is a tremendous upside. I own a mobile home that I am currently owner financing in this park, and was approached by the owner some time ago about buying the park. I reached out to him last week and we are meeting early next week. It's owned by 2 brothers in their 60's and they are ready to retire. They recently sold their primary (salvage yard) business, so I believe they sincere in their reasons. So here are the details:

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Asking price: $410,000.00 (Owner already stated negotiable)

Owner is willing to do some owner financing - No terms have been discussed.

Park has 28 mobile home lots with sewer and water installed 2 to 3 years ago. Sub-metered. Looks like possible room for small expansion, but not verified.

22 lots are occupied paying $200/mo. lot rent. $52,800/yr.

Right now expenses are an assumption $1600/mo. $19,200/yr. Debt Service not included. I think that number is conservative.

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Upside: Renewals and new leases will be at $220/mo., and raised thereafter a minimum of $5 per year. Last increase was 2 years ago, from $180 to $200. I'm sure I can fill the lots with 6 more homes, and not only maximize the occupancy, but also owner finance the mobile homes for additional revenue. There is commercial expansion of stores and restaurants within 5 miles. One of the top school districts in the county.

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My thoughts are securing bank financing for the majority of the purchase. Purchase price somewhere in the range of $360k to $380k. If I can still get positive cash flow, ask seller to take back 2nd mortgage on all or most of my down payment. Reason is that down payment taps my capital, and I need the funds to bring the six additional homes, but I do have seasoned funds, to satisfy lender.

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Do any of you seasoned pros, have any advice or suggestions?