All Forum Posts by: Howard Abell

Kelly,

I do not understand why you are multiplying the  lot rent  by 70. However you could look at this somewhat differently. The lot rent for 11 lots yield 41580 per year. The rent to own lots yield the same in lot rent and an additional 46200 per year is income related to the purchase. You can deal with that in several ways but the income has value. 

If you use all the income generated I believe it is 129,360. If you subtract the 41,500 in expenses you are at 87,000 for NOI on this scenario. I believe the Income from the rentals have value and that when they finally pay the home off you will make up some of that by a reduced expense ratio. Cash flow will not be hit as much as you might expect.

Based on just the numbers without knowing the condition of the park structure and the ability to replace tenants, I think think your method is undervaluing it. Also if the casino becomes reality there are many low wage jobs created just 15 miles away. Something to consider.

It sounds like you have a good opportunity and you understand what it will take to rehab the home and bring it up to standard. The landlord is concerned about maintaining some control over the quality of the tenants in his park and you should sit down with him or her and discuss the parameters that would make him/her happy. By knowing what the guide lines are you can know going in what kind of tenant you will need to market to.

I am a commercial broker. If what you have described is that you will pay him a total of $150K for the whole deal than that is well within typical ranges. If you are saying that it is $150K up front, and two more payments of $150K than that is called a net commission deal in that he is getting the overage of what you wanted on a net basis and what the bank has agreed to pay and is outside normal practice but not unknown. There is no such thing as industry standards. Everything is negotiable. 

Reuben,

What you described is usually called a Limited Partnership or Carried Interest Deal. If you Google key words, limited partnership, general partnership, carried interest, private equity deal structures, you will find lots of resources. Good luck.

I should add that the forums on BP can be very helpful as well.

Tyree, you can go to Amazon.com and find several commercial real estate books. There are books geared to learning the broker side as well as investing and leasing in commercial real estate. Good Luck.

Nancy,

As a past Chicagoan I must say I like the way you think. LOL

You might also research the government incentives available for using solar energy. It might tip the scales to the profit side.

Joel, that was nice explanation of the scenario. One other concept here is the yield to maturity which accounts for the expected or possible sale a lower price. The investor is quite aware his yield to maturity might be somewhat lower than his entry cap rate. 

From the information you supplied it seems that the valuation you claim and the NOI I can estimate you are getting about a 5% return on your investment. Most of that cash on cash. If that is an adequate percentage return than keep it. However, selling and taking the equity available and putting it into several new properties should increase not only your percentage return but the absolute dollar amount you are receiving. Just a thought.