All Forum Posts by: Neel Patel

@Neel Patel - I doubt you can get $1600 for the larger unit; for $1600, the tenant could rent a fully rehabbed single family home in a nice area of Huntsville or even Madison proper; the other rent amounts are probably feasible, although again, $1100+ can net a decent SFH rental. I'd run your number with lower rent amounts for those two units.

1.  Your net operating income should have changed more due to the CAMS of $19,528.

2. You're increasing the rent, but also adding CAM of $19,528; plus, NNN other costs. How sensitive are those Renter types?

3.  Do some failure or sensitivity analysis.

a.  Assume xx months of lost occupancy.  Right now, your assuming 100% occupancy.

b. Run your COC with Principal and Interest, since you're looking at this from a long-term standpoint.

c.  Switch your interest rate to 8% and run both your current 5 years and after your 5 year balloon period.  Validate your financial metrics again.  Don't do the deal just for an Interest only loan.

4.  What are the quality of your clients?  

5.  When they leave, what is your conversion costs or build out costs for upgrading.  Need to factor in an assumption.  

6.  Run the numbers doing a Commercial Loan with 25% down and interest rate of 7.5% and compare against your Interest only loan of 5%.  a.  What is the difference in cashflow P/I versus I?, b.  What is your opportunity cost of the Downpayment difference, do you have other deals you could be doing?  The interest only looks great, but I would still run the numbers and see the difference.

Quote from @Robert Ellis:

Quote from @Logan M.:

In November 2021, I purchased a single-story commercial building in a downtown area outside Provo Utah.

Attached is the first picture of the front of the building. This building will have 8 apartment units, 5 short-term rental units, and 2 office spaces. 

Three keys allowed me to own 50% of this building with $130,000 invested. (To give you some numbers we are all in at 2.1 million and it appraised just shy of $3.2 Million)

This was a seller-financed transaction, the terms allowed us to use the ground as collateral and I brought partners in after I got all of the city approvals, and they took over the future expenses for the seller financing note and the other costs like engineering. 

We leveraged the land and got a bank loan for $1.6 Million.

THESE DEALS ARE OUT THERE!

 did you face any hurdles for land appraisal without seasoning? interview multiple banks? I think a lot of people don't focus on the financing side or what it takes to get a deal done but that is everything 

 It is also one of the more difficult parts to understand.

We didn't run into seasoning issues but it was because I had owned it for a year by the time I got the construction loan. In that time I worked on approvals and interviewed several banks. We had full approval from three different banks before we made a decision.

 Sorry. I don't have the best signal when I am at work. Many times it won't even tell me that someone called, but texting works pretty great! If the bank is in Alabama, I know a few that will finance it. EvaBank, Traditions, First Bank, I think People's is open to it when I did my canvas last month, and Vanderbilt and 21st Century Mortgage are both big players in the mobile home and MHP lending market.

Hi, Neel. What are you basing the assumptions on for that 1500/month mortgage? For disclosure, my current mortgage on an MHP is 1564 for just principal and interest. 15 year amort, 5/1 ARM, @10.3%. But that was earlier this year and with 6 older park owned homes.

For something like this, I would be trying to cap it around 200k max. Only base it on current rents like the others said. There's too many pieces of work trying to advertise value-adds at a price where the value was already added.

$2400 doesn't give you a lot of margin. 

-300 trash

-150 insurance

-100 taxes? (you can easily look this one up) 

-240 management fee (even if you manage it yourself, include the fee) 

-septic management every two years if it's not on public sewer

-any water if it's not submetered

-100 if the park supplies security lights

You're looking at closer to 40-50% expense ratio before the mortgage. Mortgages aren't included in CAP rates, but they are absolutely included in your own personal underwriting.

Other things to consider- is this on a well, septic, or have easements? What is the area like? Is there room for expansion? 

I would love to link up with you on this, especially if it's in north AL or southern TN. 

Some owners around here are looking to get acreage price PLUS the value add. I don't waste much time with them. 

Based on current rents, 200k would be the absolute highest with a better mark toward 150k based on location and conditions of the homes. Even though you're not owning them, they play a role in  how much you may be able to expand or charge. 

Floor for this area is about 250-300/month with no utilities.

The major missing piece here I would need to advise would be the market you're investing in. Lowering expenses and increasing revenues are always the game plan, but ultimately I'm offering on its current performance and local cap rates. The upside is why I'm offering, but I'm not using speculative revenues and expenses to predicate my offer price. If you're going direct to the seller I have found the more you can outline and explain objectively how you've arrived at your offer can usually make that number more palatable. Good luck!

@Roger D Jones I would never make an offer based on a sellers proforma but you said don't make an offer until you have historical expenses and revenue. I make offers based on what I know I can operate a property for and what the current gross rent is when I don't have all of the information. I 

I always make offers based on what I know and have contingencies in the contract to protect myself. 

 I don't think I would make a 'blind' offer on my future anticipated performa on the park.  It would be based on the owner's current actuals with an explanation how you got to that number.  Owner can always come back with another number.  Never pay of 'ifs or buts and candy and nuts'. IMO. :)

What is the average cap rate in your area?

Based on your NOI and an 8% cap rate you would be around $336,000.