How much to pay for a RV park or a mobile home park?
Realtor · Houston, TX · Member since 2015 · 56 posts · 14 votes
How much to pay for a RV park or a mobile home park?
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Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
4yThe standard rule is that the operating expense of a mobile home park is 30% if the tenants pay their own water and sewer and 40% if the park does. But if the park is less than 20 lots, you are safer at increasing that expense ratio to 40% and 50% respectively. So all you do is take the total number of occupied lots times the lot rent time either 50%, 60% or 70% to get the net income. You divide this number by the asking price and that gives you the cap rate. Most mobile home park buyers want to pay a cap rate that is around 3 points higher than the interest rate on the loan. That can get you a 20% cash-on-cash return.
RV parks are treated differently. The bank will want to see the last three year's P&Ls and tax returns from the seller, and then will average them and count that as the net income. RV parks are typically priced at two points higher cap rate than mobile home parks because they have more risk since customers can freely move out (mobile homes cost around $5,000 to move by comparison).
There are about 1001 additional items you need to know, but that will get you started.
7 Replies
- Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes4y
The standard rule is that the operating expense of a mobile home park is 30% if the tenants pay their own water and sewer and 40% if the park does. But if the park is less than 20 lots, you are safer at increasing that expense ratio to 40% and 50% respectively. So all you do is take the total number of occupied lots times the lot rent time either 50%, 60% or 70% to get the net income. You divide this number by the asking price and that gives you the cap rate. Most mobile home park buyers want to pay a cap rate that is around 3 points higher than the interest rate on the loan. That can get you a 20% cash-on-cash return.
RV parks are treated differently. The bank will want to see the last three year's P&Ls and tax returns from the seller, and then will average them and count that as the net income. RV parks are typically priced at two points higher cap rate than mobile home parks because they have more risk since customers can freely move out (mobile homes cost around $5,000 to move by comparison).
There are about 1001 additional items you need to know, but that will get you started.
- Investor · Naples, FL · Member since 2009 · 167 posts · 165 votes4y
What Frank said and also be sure that if there are any park owned homes, that you only do the above calc on the lot rent portion of the income. Rent for the home should not be figured. You will want to value the mobile home separately based on what you can sell it for quickly. If you value the portion of rent allocated to the home you will likely be overpaying.
example…
PARK VALUE:
Lot rent is $400. Total rent for home and lot is $850.
$400 x occupied/paying lots x 12 x .5 / cap rate = valueHOME VALUE: If you can sell the home for 10k-15k than subtract out your sales, marketing, Reno, title transfer costs etc and maybe a little more for fudge factor and pay that for the home so you can at least recoup costs. The bigger fudge factor the better.
hope this helps. Reach out if you need more help.Mario
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes4y
Quote from @Frank Rolfe:
The standard rule is that the operating expense of a mobile home park is 30% if the tenants pay their own water and sewer and 40% if the park does. But if the park is less than 20 lots, you are safer at increasing that expense ratio to 40% and 50% respectively. So all you do is take the total number of occupied lots times the lot rent time either 50%, 60% or 70% to get the net income. You divide this number by the asking price and that gives you the cap rate. Most mobile home park buyers want to pay a cap rate that is around 3 points higher than the interest rate on the loan. That can get you a 20% cash-on-cash return.
RV parks are treated differently. The bank will want to see the last three year's P&Ls and tax returns from the seller, and then will average them and count that as the net income. RV parks are typically priced at two points higher cap rate than mobile home parks because they have more risk since customers can freely move out (mobile homes cost around $5,000 to move by comparison).
There are about 1001 additional items you need to know, but that will get you started.
Frank
This is an awesome post and the first time I have seen it put this way - which is great for a back of napkin analysis on a MHP. Out of curiosity, if th MHP owns the homes vs. tenants owning the homes, how much of a difference does that make?
7e investments53 Reviews - 4yAnna CatronPro MemberFort Worth, TX · Member since 2017 · 206 posts · 87 votes
Quote from @Chris Seveney:
Quote from @Frank Rolfe:
The standard rule is that the operating expense of a mobile home park is 30% if the tenants pay their own water and sewer and 40% if the park does. But if the park is less than 20 lots, you are safer at increasing that expense ratio to 40% and 50% respectively. So all you do is take the total number of occupied lots times the lot rent time either 50%, 60% or 70% to get the net income. You divide this number by the asking price and that gives you the cap rate. Most mobile home park buyers want to pay a cap rate that is around 3 points higher than the interest rate on the loan. That can get you a 20% cash-on-cash return.
RV parks are treated differently. The bank will want to see the last three year's P&Ls and tax returns from the seller, and then will average them and count that as the net income. RV parks are typically priced at two points higher cap rate than mobile home parks because they have more risk since customers can freely move out (mobile homes cost around $5,000 to move by comparison).
There are about 1001 additional items you need to know, but that will get you started.
Frank
This is an awesome post and the first time I have seen it put this way - which is great for a back of napkin analysis on a MHP. Out of curiosity, if th MHP owns the homes vs. tenants owning the homes, how much of a difference does that make?
I was going to say the same thing. that's a great formula!
- Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes4y
The formula is the same if the tenant owns the home or the park owns the home -- because you can only count the lot rent. Only the lot rent is "real property" income and the home rent (if any) is "personal property" income which is not something you can apply a cap rate to. If the park owns the home you would follow my formula but you might be able to add the value of the home if you were to sell it. But unless the home is from 1990 or newer you should not count any value on the home, as you will spend $5,000 in renovations to sell the home for $5,000.
- Real Estate Investor · Stafford, VA · Member since 2010 · 2 posts · 1 vote4y
Thank you so much for the response Frank. I do have a question. How hard is it to find financing to purchase a mobile home park? I have the opportunity to get one fairly inexpensively because the husband passed away and the wife doesn't want anything to do with it. I heard that SBA gives loans for the purchase of a mobile home park. Is that true and is that the best way to go about financing this park.
- Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes4y
If this is a smaller park, seller financing would likely be the best option. However, if the seller is not open to carrying the financing, then the type of lender is going to depend on the quality and size of the park and your qualifications as the buyer. Generally, the common types of debt available for MHPs are:
Local & Regional Banks - You can find out which banks have an appetite for mobile home parks by asking the MH/RV brokers in your area, networking through other owners of parks in your area, or simply obtain list of the smaller banks in your area/region and call them to see if they have lent on parks in the past. If they have not, don't waste your time. Also, is important to consider that a $200k loan takes the same amount of work as a $20MM loan, so you may come across some banks who like MHP's yet they may not get excited about really small deals.
Life Companies - Life co debt will typically have better terms than banks, but will come with tougher qualification criteria. You can access life co debt through a commercial loan broker, but again, take the time to find the broker who specializes in MHP debt. If the broker doesn't have a deep level of experience placing debt on mobile home parks, you could be in for a lot of brain damage and promises that are not met. Network through MHP attorneys and MH/RV park brokers or owners to find the right commercial loan broker.
Agency (Freddie/Fannie) - If the park and the buyer qualify, this will be the best debt, but the qualifications are even more restrictive. Just like Life co's, you can access agency debt through a commercial loan broker, so take the time to find the most experienced MHP broker.
Conduit (CMBS) - They can be a little more flexible than agency or life co, particularly with respect to the park and terms. Again, you can access conduit loans through a commercial broker.
(In addition to those sources, there are a few others that are less common, such as HUD and SBA)
Your track record of experience with the asset class will have significant impact on whether a loan is considered, and whether you can negotiate the terms of the loan, so be prepared to demonstrate your experience, or the team you have built around you who has the experience.
Typically smaller deals under 50 spaces will be best suited for banks. Once you find the right banks, there will be more flexibility with respect to qualification of the deal and you as the buyer, particularly if you lack a track record.
Larger deals will open the door to agency, conduit, and life companies, all of which tend to come with better or more flexible terms, but with a higher degree of buyer experience and park requirements. For example, some lenders will require you already own and operate a similar asset in the same market wherein you are buying the subject property. Some will have a minimum number of spaces and pavement requirements in the park. Some will have restrictions as to total occupancy and percentage of POHs, while others are more flexible. Many of these loans can be non-recourse or limited recourse, but there will likely be liquidity and net worth requirements of the borrower. Some loans will come with defeasance or yield maintenance, while others will have step down prepayment penalties.
A good loan broker who specialized in MHP debt can guide you with respect to the right choice for you as the buyer, which type of lender will be best suited for the park, where the terms will be the most favorable, and where the hurdles will likely be. Having that relationship will help you get the best terms for the deal and avoid wasting time on a loan that is low probability.
All the best,
Jack
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