Should I Buy?
Gina thinks he may be getting a good deal if she invests in a trailer park, but Dave doesn't like the idea of borrowing in order to invest.
QUESTION: Gina wants to know if she should invest in a trailer park that appraised at $250,000. The seller is asking $225,000. The bank will not give Gina more than a 3 to 5 year loan for the trailer park property. Should they stick with the rental house that they have right now?
ANSWER: First of all, make sure the appraisal was accurate and that it wasn’t just done by the bank that has a loan on the property.
Second, you should never borrow in order to invest.
You should never pay more than 10 times your annual net profit for a rental property. If you add in vacancies, operating costs, and taxes, $225,000 is asking too much for this trailer park.
With a trailer park, you’re dealing with a high turnover of renters which could easily lead to collection problems. There’s going to be a lot of hassle, so you need to make a very good return on this to make it worth your time and effort.
I would move forward slowly or not at all in this situation.