All Forum Posts by: David Hughes

@Adam Johnson This property is not in the path of future development, so the premium price would not be for that reason. What CAP would you put on this deal, if it is not worth 10?

You are right that I would be buying a lot of work and there is risk if occupancy drops.

Regarding a 5-year balloon, in what situation is that a risk worth taking? Or do you typically look for 7-10 year balloons or, ideally, a non-recourse seller financed deal?

I didn't take your comments as cocky, by the way. I appreciate the "alarm bells" which force me to study the deal further.

Thanks!

Joel, I didn't know about defeasance penalties, but that would explain why this seller does insist that the new buyer assume the loan. It does seem that the seller wants the benefits of selling a full park without having done the work to fill it. Regarding your question about acreage, the total land is 3.5 acres for all 104 lots... does the density seem too high for a good park?

Aaron, the water, sewer, electric, and gas are sub-metered and billed to the home owners.

Bill, thanks for your advice in Point #3 about my first park not needing fixing--I will consider that. Regarding Point #2, I also wonder if a local bank would do a second place loan behind the assumed loan. On your Point #4, about 10k not being enough to move in a home, maybe I'm not budgeting enough.... I was thinking about $7k for the home and $3k for transport and installation. Regarding if there is demand for another 36 homes, I would need to validate this with a Craigslist add to see what kind of response I get. There is a smaller MHP alongside of this one; I talked to this park's manager who said there is steady demand for his homes, so I think there would be demand for more homes, but this would need more validation.

Rachel, I agree with you that I would need to open negotiation by using current numbers vs potential. How do wise / experienced MHP buyers know when to pay a premium for certain opportunities and situations? Also, thanks for your advice about contacting Mobile Home Dealerships as a resource for quickly filling a park. 

This is the first MHP deal I have analyzed and would like to hear your opinions about it--

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-104 total sites, 68 owner-occupied, 36 vacant on 3.5 acres

-Lot rent is $310 and at market rate

-Assumable loan of $1,365,000, due June 2019, at 4.9% rate

-Buyer would need downpayment of $535k

-68 lots x $310 x 12 x .6 x 10 = $1,517,760 value at 10% cap

-List price is $1.9M

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If I paid the $535k down payment with a local bank loan for $435k at 6% amortized over 20 years after a cash downpayment of $100k, the monthly NOI, after 40% expenses and debt service (for both loans), would be $10k/month.

The value-add strategy I'm considering is to take that monthly 10k NOI and buy/move in homes until the park is full. If each relocated home costs $10k, it would take 3 years to fill the park.

At the end of those three years, the park would be 100% full (104 sites), monthly NOI would be about $18k and the park would be valued at $2.3M using a 10% cap.

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Questions

1. The list price is $400k higher than the calculated value of $1.5M… likely because the current owner sees the growth potential in the pro-forma numbers. How would you negotiate the price down to $1.5M?

2. Is my strategy sound regarding spending 36 months of NOI to fill the park with units so I can collect lot rents?

3. Would a local bank loan $435k on this deal?

4. Is this a deal worth pursuing?

Thanks, Dave

Tom, you and I exchanged a few emails on this topic earlier this month. Please send the specifics of each deal to me, too.

Thanks, Dave

Tom, you and I exchanged a few emails on this topic earlier this month. Please send the specifics of each deal to me, too.

Thanks, Dave

Bob Oliver, last year I also set up a solo-k with Lawrence and transferred my 401k funds into it. Quick, cheap, and painless process. Now I am poised to take action on the right investment when I find it.

I researched the other SDIRA options and couldn't beat the value and flexibility of solo-k.com.

Jon, can you send it to me, too?

Thanks, Dave

Kirk, the 50% rule simply states that Net Operating Expenses will average 1/2 of the monthly rent. NOE does not include debt service.

To figure monthly cash flow, start with the rent, subtract NOE (50% of rent), then subtract your debt service (P&I).

Hope this helps, Dave.

Great topic, Rich. My general investment strategy has not changed but I have changed tactics based on learnings from others here on BP.

A big insight for me was that successful investors are seeking out opportunities wherever they may be geographically. If deals are not coming to their own back yard, they are willing and comfortable going to the deals, even if that means investing across the country. Of course, different risks need to be managed when doing this, but the pool of opportunities is much bigger.

The other key learning for me was the 50%/2% screening rule which I learned from studying MikeOH's and Jon Holdman's frequent lessons on this topic.