There are many, many numbers thrown around in the real estate investment arena. Here are ten that mobile home park investors need to know for each potential investment.
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PARK INVESTOR NEEDS TO KNOW
estate investment arena. Here are ten that mobile home
park investors need to know for each potential
WHAT NUMBERS DO YOU NEED TO KNOW TO MAKE GREAT
MOBILE HOME PARK INVESTMENTS?
Cash on cash returns are important numbers for
mobile home park investors. While this figure may
depend on many of the others below, it shows what
your actual cash return is. This figure can then be
used to compare investment options. To find the
cash on cash return, divide your annual before tax
income by the actual amount of cash you plan to
Capitalization rate is commonly used to compare commercial real
estate investment opportunities. The cap rate is derived by dividing
the annual net operating income (NOI) by the value of the property. So
a $1M property with a$100k annual NOI has a cap rate of 10%. This is
the equivalent to price-to-earning ratios in the stock market. However,
note that the true cap rates change over time. The income ought to go
up, and so should the property value. Investors often forget this. The
result is a far poorer cap rate in the future due to substantial captive
equity. For example, if your property value goes to $2M, and your
income stays the same you now only have a 5%cap rate. Tap this
equity and expand to keep your capital and investments performing
better for you.
How much cash flow will this property actually
produce? Gross and net. There can be a big
difference. Big gross numbers mean nothing if
there is negative net cash flow. However, there can
be advantages to high gross numbers. This can act
as a nice float during the year.
What loan to value can you borrow against this property? What
LTV will you be able to refinance at? What LTV can future
borrowers expect to achieve? How will that impact the resale
buyer pool available or potential need to offer seller financing?
5. NUMBER OF UNITS
How many units or lots are in a given mobile home park?
This can impact consistency of income. Also consider if there
is room to add more units.
How much is the rent and income per unit, door, or lot? How
does this compare to other options in the area?
What utilities are to be provided? Who pays them? How much
are they? This will impact your bottom line.
How much are the property taxes? How much are
they likely to go up? What can you do to minimize
property taxes? Then there are income taxes. How
will the returns from this mobile home park impact
your overall tax burden? How can you minimize
that and turn it into a positive? How much will you
really net after taxes?
What are local unemployment rates like? How does
this compare to other locations? Mobile home parks
can benefit from serving lower income housing
needs, but if people don’t have income it doesn’t
matter how cheap the rent is.
What are local vacancy rates for rentals and other
mobile home parks? How many units or lots are
vacant or are going vacant in this park? Build this
number in as an allowance to ensure you stay in
positive cash flow territory.
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