First Offer, Updated Financial Projections

This blog is an update regarding our efforts to purchase another mobile home park is 2013. See the previous blog which explained our first offer on MHP #1 2013 was not accepted, the broker who brought us the deal did not get the listing and when the property “hit” the market, the listing broker’s price was 30% more than our offer.  Read on if you are curious about our projections at the new price of $1.8M price and using the underwriting provided by the listing broker.

Cash Flow Projection

Below is our cash flow projection for the property which shows rent revenue growing from $225K to $319K per year over the 7 year hold period.  Expenses are ramped down from 46% to 40%, which is the industry benchmark for mobile home parks.  Net operating income (NOI) increases a healthy $63K which translates to a significant increase in resale price (see below.)  Cash on cash return averages 11.52% per year over the 7 years.

TSP

The basis for the increased revenue is bringing current rents into alignment with the market.   The incremental $94K in year seven equals an average of $140 per month increase in space rent.  This would be ramped up at 8% in the first year followed by 6% for the next 3 years, 5% for 2 years and 2% in the 7th year.   Although the adjustment in rents is reasonable, success will depend on a thoughtful and well-managed implementation effort.

Resale Analysis

In year 7, assuming we achieve our revenue and expense numbers and a $176K NOI, at a capitalization rate of 7.28% the projected sale price is $2.4M.  Net proceeds (before selling costs and taxes) calculates out like this: $2.4M – $1.1M loan – $570K down = $730K.

Conclusion

Even at the higher price of $1.8M the numbers look pretty good.  The cash on cash return of 11.52% exceeds our goal of 10%.  Proceeds from the sale of $730K, on a down payment of $570K, exceed our goal of doubling our investment within 7 years. What’s missing from this projection includes the following: capital expenditures, management fees, selling expenses and taxes.   Capital expenses are of most concern and we’d need to get further into the physical due diligence to better understand the impact on returns.    I’ll follow-up with the broker to see where they are in the process with the offer(s) he was expecting earlier this week.

If you’d like to receive all the details about the properties we are considering, please reply and I’ll add you to the “friends, family and investors” list.   Folks on this list will receive a copy of the broker’s underwriting, our financial analysis of the deal and due diligence results as they become available.   If you have a question or comment, please reply below. If this post could be of value to someone you know, please LIKE and email or repost to Facebook, LinkedIn or your favorite network.

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About John Vashon

I own a family business that invests in and manages our own portfolio of mobile home parks.
This entry was posted in Investment Activity 2013 and tagged , , , , , , , , , , , . Bookmark the permalink.

5 Responses to First Offer, Updated Financial Projections

  1. Hi John,
    I’d like to get on your “friends, family and investors” list.
    Thanks,
    Mark

  2. Matt says:

    Please add me to the friends and family list

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