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Rookie Reply: What Should I Look Out for on Mobile Home Parks?

Real Estate Rookie Podcast
6 min read
Rookie Reply: What Should I Look Out for on Mobile Home Parks?

This week’s question comes from Adri on the Real Estate Rookie Facebook Group. Adri is asking: I came across a seller financed mobile home park, this would be my first out of state investment. What should I be looking out for on MHP (mobile home parks) and is this a huge jump to make while still being a rookie?

While we can’t answer how ready Adri is for investing in a mobile home park (we believe in you), we can answer questions about what to look for when evaluating a MHP deal. Before you consider investing, you’ll need to look at some mobile-home-park-specific factors.

Here are some suggestions:

  • Make sure you get accurate financials, especially a T12 rent roll
  • Look at the utilities and see whether they’re public or private (wells and septics)
  • Look at the capital expenditures (capex) of the entire park
  • Find out who owns the trailers/mobile homes and evaluate whether the current ownership is advantageous to you
  • If you’re still nervous, partner up with someone more experienced!
  • And more in the episode…

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).

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Listen to the Podcast Here

Read the Transcript Here

This is Real Estate Rookie episode 86. My name is Ashley Kehr, and I am here with Tony Robinson and we are back with another episode of Rookie Reply. Tony, what do you have for us today?

Tony Robinson :
I’ve got a question about mobile home parks, and I know this is kind of an exciting asset class that you and I both talked about. Today’s question comes from [Adri Jewzach 00:00:26] and Adri’s question is, “I came across a seller financed mobile home park, 7 units that are park owned, just under 1,000 a month cashflow and a cap rate of 15.34%. This will be my first out of state investment. What should I be looking for on a mobile home park? And is this a huge jump to make while still being a rookie? Thank you.”
I’ll kind of share my thoughts first, Ash and then I know you’re a little bit more familiar with this asset class, but I want to touch on the second part of Adri’s question first about, is this a huge jump to make while still being a rookie? I think that’s a question that Adri, you have to answer for yourself. Ashley and I aren’t familiar enough with your time availability, with your knowledge of mobile home parks as an asset class, with your desire to self manage these on your own, are you hiring a property manager? So there’s a lot of factors I think that go into it, but just because you’re a rookie doesn’t necessarily mean you’re not equipped to do this deal the right way. If you’ve got the right, the know how, the desire and the capability, the capacity to do this, then I’d say don’t limit yourself just because you’re a rookie.
Now on the actual asset itself, I guess a couple of things I would caution you to kind of take note of as you’re going through your due diligence process. First would be to make sure that whatever financials or whatever assumptions you’re using to come up with this 15.3% cap rate, make sure that they’re like legitimate. You want to see a T12, you want to see like the current rent roll, like what are people actually paying, and use that to kind of come up with your own analysis of the property.
A lot of times when folks are trying to sell their assets, sometimes they might give you a pro forma as opposed to the actual trailing 12 months of income and expenses. And you never want to make a big decision like this based off of the seller’s pro forma, because they’re always going to make everything look very rosy, and beautiful and perfect. But if you have an opportunity to dig into the actual income and expenses for the last 12 months, that might give you a better understanding of how this property is doing financially. So that’s my two cents Ashley, what do you got?

Okay. So first, anybody that wants to hear about a rookie investor going into mobile home parks, listen to episode 65 with Tommy on the Real Estate Rookie Podcast. You can go to biggerpockets.com/rookie65, and gives great insight what it was like to purchase a mobile home park as a rookie and he actually lives on the mobile home park and manages it right now. But I will give some advice on the due diligence period of this. So Tony kind of talked about the leases and looking at the pro forma first, the actual, so that was great. My advice would be to look at what kind of utilities are on there. So do you have to deal with wells and septics? Or is it public utilities there? Because that will make a big difference. Sometimes when you have wells and you have your own water system that’s not public, you have to do daily testing of the water. So look at that and what are the fees to have it tested? And then the septics. You’ll have to have the septics pumped out so that will be an additional cost.
And then look at the cap X expenses. So what capital expenditures are going to be coming up for the mobile home park? Are the driveways going to need to be repaved? Even the trees, are there trees that are going to need to be cut because they might fall on a mobile home? So look at all those different expenses that might come up within the next five years.
And then also who owns the mobile homes, the actual trailers? So does the person selling own those or do the people living in them actually own them and they’re just leasing the land. So look at that and different type of mobile home buyers prefer different things. There’s no right or wrong if they own them or not. If you don’t own the trailers, then you don’t have any maintenance, but you’re also getting less income. You’re just getting a lot rent instead of a larger rent because they’re renting the lot and the trailer.
The next thing I would look for is what is it zoned for? And how many mobile homes is the property zoned for? So the seller may tell you like, yeah, I have seven on here now, but you can actually fit three more over here. Well, will the zoning and planning board actually allow that too? So pull any kind of permits and the zoning requirements and also look at any deed restrictions.
And then my last thing would be, is there potential for any other income? So usually mobile home park on a lot of land, could you put a shed, a little shed at each mobile home park? Could you put a gravel driveway or a gravel lot and do boat and RV storage on there? So look at that too when you are looking at a mobile home park and see if there’s any other ways to add additional income too.
Oh, and then just look at the comps in the area too, and see if they’re at market rents, just like you would a rental property too.

Tony Robinson :
That was like a short master class Ashley, doing due diligence on a mobile home park.

I feel like I’m forgetting some things though.

Tony Robinson :
That was really, really good. I guess the only thing that I’d add lastly, Adri, if you’re at all concerned about maybe taking on a project, that’s too big for yourself, and we talk about this all the time, is just finding a partner. If you’ve got someone that maybe has a little bit more, either knowledge about mobile home parks, or maybe the time to do the homework and kind of educate themselves, that might be a way to kind of ease some of your fears about making this jump while also being a rookie. But I think Ashley gave you all the info you’d need to kind of hit this one out of the park, if you do decide to move forward.

And I think he’s going to have a lot of people saying, hey, I’ll partner on this deal. So yeah, that’s awesome. Found a deal, definitely take our recommendations and see what you can find out, and dig into it and see if it will work for you. I think that’s all we have for today’s Rookie Reply. We will be back on Wednesday with a guest to hear their story and to get some great real estate advice. I’m Ashley at wealthfromrentals and he’s Tony at tonyjrobinson on Instagram. Thank you guys for listening.




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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.