Or more than one?
If it’s not too imposing, can I ask what the property is and how much it made last year?
Do you do the repairs yourself or hire someone?
I have an RV park that is losing money due to unexpected maintenance costs.
There will be a lot of difference between properties.
The one I was closest to grossed $13k/month and was owned with cash. Bought for $400k in 1994, and ARV is around 1.2M.
Want to tell me about your property?
My property has 7 travel trailers and one mobile home. It was purchased for $175,000 cash in April.
If fully rented out, it would have about $63,000 in rent per year before taxes.
We pay the electricity for the whole park.
Other than that, maintenance is just eating us alive. Every week it’s something new. A septic tank drain field will have to be replaced, an air conditioner goes out, some plumbing work needs to be done…
How can I maximize the profit of this?
I will tell you the exact address on a PM if you would like.
Can you tell me about your most profitable properties? Especially the one that you bought for $400,000 in cash that profits $13,000/month?
I am about to take partial ownership of another property that my buyer is buying with cash. Probably an 8-unit apartment complex. I don’t want this one to fail like the RV park is doing.
We need a current income and expense (operating data) statement.
The more you break down the income/expense numbers, the more accurately we can assess the operation.
Otherwise, we’re just flying blind. How the project should perform, is irrelevant until we know how it’s currently performing.
What is the existing GSI (Gross Scheduled Income). This includes actual rents, and best estimates on the vacant spaces/units.
What are the current, actual expenses? Never mind that the park is nearly empty.
Income at maximum capacity:
Unit A: 185/week
1: 125/week
2: 150/week
3: 150/week
4: 150/week
5: 125/week
6: 175/week
7: 150/week
= $63,125.70/year ($59,388.16 after sales tax)
Current rents:
A: 185/week
1: 125/week
2: being evicted
3: 150/week but being evicted because he’s consistently $70 behind
4: 150/week
5: 500/month (cut him a little deal because he does cheap maintenance)
6: 175/week but being evicted because they turned it into a squat house
7: being evicted
I have just recently got very hard on the tenants and started posting eviction notices if they are even $1 behind
Expenses:
Property Tax: $1312 last year
Electricity: about $1000/month
Water: about $500/month
Business Tax: $30/year
Insurance: $2530/year
= $21,872/year before maintenance
This is a profit of $37,466/year…
Here is a table of profit per year proportional to maintenance cost per month…
Maintenance cost per month, profit per year…
$1000, $25,466
$1500, $19,466
$2000, $13,466
$2500, $7,466
$3000, $1,466
$3500, -$4,533
Is there anything else that you need to know?
I don’t know if it would be possible to add any new units.
Issue: Confusing the terms “profit” and “cash flow” These are not the same thing.
Issue: I have no idea what you’re attempting to say with your Maintenance cost per month, profit per year… list.
Issue:
Show percentages of vacancy rates, expenses, etc. Your presentation of data is confusing and unorthodox, using confusing undefined terms.
Issue:
Use this data sheet as a template for terms, and analyzing/illustrating your operating data.
http://jaypalmquist.com/images/real-estate-analysis-form.png
Issues:
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You bought an under-maintained RV park @ $22K per unit.
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You inherited a bunch of losers, that are used to ruling the roost.
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You are now stuck paying for the previous seller’s severely deferred maintenance (which may, or may not be reflected in the price you paid, I don’t know).
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You are engaging in a project “turn-around,” and this, practically by definition, requires extra money and time spent to “turn the project around.” In this case, you’re applying competent management, to a dysfunctional situation, and stabilizing the operation.
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I don’t believe that you’ll be doing these major repairs for the life of the investment. I mean how many septic tanks do you have? And are they all going to suffer the same problems as the one you just fixed? If so, perhaps it’s time to consider hooking up to the city system; and/or rezoning and re-positioning the project for a different use; and/or getting out of this project altogether?
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A tiny project with these kinds of issues; where the costs cannot be amortized very broadly, is not particularly attractive.
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This will be a management-intensive hell hole for the entire time you own it. If that’s OK, and you have time, then just stay on top of the management, and cross your fingers.
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Eventually, you’ll want to unload this project, because it’s too small, too management intensive, and too expensive to maintain. Just saying.
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Next time around (just a suggestion), invest in 30+ spaces. You’ll easily amortize the hiccups, and much more likely maintain a profitable cash flow. And have the major systems inspected, so you’re not walking into walls again.
How much work is usually required in your investment properties?
I only go there about twice per week plus some extra if there is some labor intensive job to do… it’s not THAT much…
Thanks for the sheet. I will fill it out.
Maintenance cost per month, profit per year is…
Using the total of $21,872 profit per year before maintenance…
If I spend $1000 on maintenance every month, this makes the profit $37,466/year
If it’s $1500/month, then the profit is $19,466/year… and so on…
Of course this is all assuming 100% vacancy, which is not what is happening at the moment…
You need daily eyes on your RV park. How you do that, depends on you.
Somebody needs to pick up litter, trash, and debris on a daily basis, if nothing else.
Tenants won’t pick up after themselves, even if it’s their crap on the ground.
You should set up your own professional management to supervise the park, and you manage the managers you hire. Otherwise, there’s probably no reason for you to be visiting the park, more than once, or twice, a month, to get a feel of the operation. You’ll always notice ‘something’ which will tempt you to camp on the place, but that’s what managers are for, and that means the manager needs more training.
i do camp on the project, when I first buy it. It’s during this time, I floss the brains out of the inherited management, to get as much inside information as I can, before I fire the managers, and bring in my own team.
I am the manager. My dad owns it and never goes there. I know what goes on there during the day.
I think hooking the place up to sewer and installing individual electric poles so I don’t have pay electricity would be a good move.
Technically, I am 24% owner, but that’s just because my dad made me that to be nice. He bought it in cash.
I really need to start evicting all the bad tenants and show them who is boss.
At one point, there were drug dealers in and out several times per day, but I put an end to that, so progress has been made even to get up to this point.
Okay, that’s the most dysfunctional approach to analyzing a project I can imagine.
Rather, this is what you should expect to see, on a properly operated rental income business (of which this barely qualifies, since you’re renting by the week. This is otherwise called a “lodging business.”
For what it’s worth.
$63,000 GSI
<$ 3,150> Vacancy/Credit Loss (5% of GSI) If we’re not at 5% on a
rolling average of say 6mos., our rents are either too high,
or too low, and/or the project is being mismanaged.
$59,850 GOI (Gross Operating Income) (95% of GSI)
<$28,350> EXP (45% of GSI) Everything; management, maintenance,
septic tanks, electric, etc.
$31,500 NOI (Pre-tax Cash Flow (50% of GSI) After everything.
If this was me, and my cash-flow dropped below $31,500 for any reason, assuming I could actually establish this performance level in a given year, I would either change the manager, and/or find out who’s stealing from me (not in that order), find and unplug the bootleg extension cords running from my boxes to the neighbor’s backyard, and otherwise start going on the “reconnaissance mission from God” to figure out why I’m losing money …assuming I don’t already know.
And just for giggles, put the security lights back on a mechanical timer, so that they only shine for a strict, predictable, number of hours per week. Screw the curvature of the earth. My lights stay on for 8 hours max. That’s why God gave renters flashlights, so they could mostly see their way back from the outhouse in the dark.
That’s my take.
BTW, always start with the GSI (Gross Scheduled Income) when analyzing your deals. Then work to your NOI (Net Operating Income).
The NOI pretty much defines the return, the cash-flow potential, and anything else that’s important.
You’ve probably discovered that most sellers leave out management, reserves and replacement costs from their operating data sheets, and this dramatically skews NOI.
And we often get the old saw from the seller, that he manages his own property, so “that’s not an expense.” Yeah? “Well, my time’s worth something,” I say.
I could go on, but I won’t. 
I don’t rent by the week. I collect rent by the week on some of the leases, but they are year long leases, so they are not transient.
Where did you get your figure of 45% for expenses?
Other than labor, what is time intensive about management? Everything else can be done from home.
I don't rent by the week. I collect rent by the week on some of the leases, but they are year long leases, so they are not transient.Where did you get your figure of 45% for expenses?
OK, it’s irrelevant how many times a month you pick up partial rents, then. Just cut to the chase and state the monthly rents.
I used 45% on the EXP figure, because I’ve already deducted the 5% in vacancy and credit losses above. Otherwise, the combined vacancy and credit loss and operational expenses should be around 50% of the GSI, at market value rent.
Otherwise, I could have combined the operational expenses with the vacancy/credit losses and called it all “EXP” or (50% of the GSI) However, that would have clouded the Vacancy factor figure.
Sample Assumption
GSI — (Gross Scheduled Income) 100% of GSI
VAC — Less Vacancy/Credit Loss or 5% of GSI
GOI — (Gross Operating Income) 95% of GSI
EXP — Less Expenses, or 45% of GSI
NOI — Equals NOI (Net Operating Income) 50% of GSI
Is that 50% figure an industry standard?
Yes, you could say that’s an industry standard. Put it this way, that standard has been used on me, to grind me on my price, that I always remember to use it, when I’m negotiating a purchase.
That said, that’s both a negotiating position, and a practical assumption to operate from.
As I’ve said in prior posts, you may not spend 50% in a given year, but who’s gonna pay for septic tanks that need replacement, when they need replacement, if you haven’t budgeted for it, and set aside money for replacements?
Obviously, in your case, and this isn’t meant to be overly critical, but someone failed to account for a failing septic system, before you purchased this project, and so you ended up drawing the short straw.
That all said, with scheduled rents hovering at $650/unit/mo, and your unit cost hovering at $22,000, that makes the rent/price ratio 2.95%, which seems like a profitable play to me, all things being equal. Which is a change of my mind, now that I’ve got more information in front of me.
So, I would say your job could be to stabilize the tenants, and make the leases uniform and predictable.
This will allow you to begin creating a positive, reliable performance history, if not raise the rents, and create equity out of thin air.
Speaking of raising rents, and creating equity out of thin air…
Questions:
- Can you you inexpensively, improve the curb appeal of this dysfunctional hell hole, in order to attract a better quality clientele, and charge more rent?
- How little could it cost to haul in a newer, nicer, more attractive coach, and get rid of the one that looks like it was out of the movie “Deliverance?”
- How about installing privacy fences, between the spaces?
- How about creating a common area with tables and a BBQ pit?
- Are the streets paved, sealed, and black, with stripes, or are they gray and alligator-craggy, like my last girlfriend’s neck? Don’t ask.
- Can certain spaces offer a protective canopy, for an extra $50/mo ($600/yr), that will reduce the heat in the customer’s coaches, and reduce your cooling bills in the summers?
- Is there designated, courtesy parking for guests, and towing vehicles?
- Is their interior-park directional signage? Would it be helpful to have it?
- Is there a sign advertising the park, that reflects well on your potential customers?
I mean there’s the “Clampett’s RV Hole” sign, and then there’s the “Winter Haven Motor Lodge” sign. Where would you rather tell people you’re living? And what would you rather tell people you own?
Anyway, you asked what could be done to make more money, and that’s the best I can do today.
FWIW
Improve the curb appeal? Yes, I could. I could put in white vinyl privacy fences around the whole perimeter. I could give the tenants free Internet access. I could put the picnic tables and barbecue pit like you said. I already planned on adding some citrus trees. I can sell some of the older travel trailers for newer ones. I could flatten the ground instead of having it uneven like it currently is.
I will take pictures of it next time I am there.
I could even add a gate that requires security code access.
I could evict the sex offender from unit 4. I could evict the guy with the weed plant from unit 3.
This place will be looking a lot different in a few months.
I went up there today and a tenant was mad that I wouldn’t work with him, so he threatened to break my face and my car windows. This guy has already cost me over $1000 in unpaid rent and I was nice enough to give him a second chance because he has three kids and his wife was crying that they had no place to go. I called the police, but he didn’t get arrested for some reason. Apparently, threatening to break someone’s face is not illegal anymore.
I could also turn it into a 55+ community, but I’m not sure if that would limit the number of good tenants I could get.
Those are great ideas!
The ‘senior park’ deal is a NO! Senior parks are notoriously low rent, and high maintenance operations. Don’t do it. Never mind, they hate kids, complain, and otherwise get in your hair, if not uncooperative. And I’m just talking about their dogs. j/k
I’m not sure the security gate is practical. You want prospects to be able to get inside to look around at will. Otherwise, you’ll need an onsite caretaker, who can open the gate for visitors. Not to mention it’s inconvenient, if not impractical for residents to allow guests in. IF you can provide a parking area just outside the gate, but with pedestrian access, it might be more functional, I don’t know.
My management team never addresses low-end collection alone. I have them go as a team, and hopefully one of them is my 6’3", burly, tat-covered maintenance dude, “Bull.” And, if this is gonna be a trend, you should consider carrying. This isn’t 1950. This is the age of Obama, where all the freaks seem free to act out.
If you can, do the lion’s share of the improvements all at once, and not little by little. This way you can immediately justify raising the rents, and pull more money in, in a shorter period of time, to recover the costs of the improvements. Ideally any improvement should pay for itself within 36 months, either through increased retention, or through higher rental rates, or both.
And just to insult your intelligence for a second, let me illustrate; if you were always experiencing a vacancy in Space 3, because the ground was always wet from a broken drain pipe, you would spend the $1,800 digging up the pipe and fixing it, to increase your retention rate.
Or to put this another way, if you were charging $100 less for that space, because the ground was always soggy, you could instead spend the $1,800 on the repair, and subsequently raise the rents by $100, and have it paid for in 18/mos ($1,800 / 18/mos = $100/mo)
Great ideas for increasing the bottom line.
Also, the mosquitoes are terrible out there. To the point where I don’t know how anyone lives there. I got a few things to take care of them, but they only work temporarily.
I will add citronella plants and bats.