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Mobile Home Park Investing

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Joe Mills
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Valuing mobile homes

Joe Mills
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Posted Feb 27 2024, 14:37

My portfolio currently consists of single-family stick-built rentals. I have the opportunity to purchase 4 mobile homes on an acre of land for $135,000. The owner reports gross rents of $2750/month (this includes the home plus lot rent). While the cash flow looks attractive, I am concerned about the long-term viability of the investment since the location is not ideal and these are older, albeit partially remodeled, mobile homes. I would like to have a good idea of the value of the mobile homes should I desire at some point to sell them off individually and then sell the land. Do mobile homes have a "book value" based on make/model, size, condition, etc. and if so, where can that information be found? My hope is that I would someday be able to sell the homes+land together as a "business" based on the NOI, but want to protect my downside should I need to liquidate everything on a piecemeal basis. Thanks in advance for some education on this topic!

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Replied Feb 27 2024, 17:34

Joe,
There is a lot to unpack here to answer your question.  Mobile homes are like cars but they do not have a book value that you can determine like a car with Kelly or NADA.  Older homes have almost zero value if you are hoping to sell them and have them removed.  I bought six 1980 doublewides from a park that was closing and paid $500 each for them and that was just to be able to keep the washers and dryers. 

Professional park owners will tell you to only consider the pad rental in evaluating a park investment.  If the seller thinks the rentals are worth more the seller can keep the homes and pay you pad rent and keep the difference.  They won't do it- because they know one of two things.  A) they know how much it costs to repair/maintain those old mobile homes every month or B) they have not been maintaining them and they know what is awaiting anyone who buys them.  

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Joe Mills
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Joe Mills
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Replied Feb 28 2024, 03:02

Thanks so much for the reply Roger.  I appreciate the sound advice.

While this is probably a wild goose chase, I wouldn't mind playing this out with the seller a bit (for my education at a minimum) and pursuing what you say about making an offer for the land only and letting them keep the trailers. If pad rent for the 4 trailers is say $1,000/month, what would be an appropriate offer? It's on public water and septic tank. The owner says the septic tank has recently been pumped, but I don't have information yet on the condition of drain field. The driveways are gravel and appear to be in pretty good shape. Taxes would be around $500/year for the land only. What expenses am I missing? I would likely make a cash offer and finance with a personal HELOC, currently at 8.5%. Thanks!

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Rachel H.#2 Mobile Home Park Investing Contributor
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Rachel H.#2 Mobile Home Park Investing Contributor
  • San Antonio, TX
Replied Feb 29 2024, 06:19

@Joe Mills If you're just looking at the mobile homes individually (as personal property not attached to land), a good place to start is the tax assessment for the homes. 

From there, you can do more due diligence by talking with surrounding mobile home dealerships and park managers or owners to get an idea of the market values of these homes which depends on factors such as size, age, location, fix-up work, etc. In the past, I've found these resources to be good information for market insight when it comes to doing due diligence. 

Also, you can take a look at what's on the market now in the surrounding area to see if there are any other comparable mobile homes for sale. You may be able to find a few listing agents (if listed) who may be willing to talk with you to help with your market research. 

Hope that helps! 

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Joe Mills
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Joe Mills
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Replied Feb 29 2024, 06:42

Thanks so much Rachel!  Good advice!

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Replied Feb 29 2024, 08:45
Quote from @Joe Mills:

Thanks so much for the reply Roger.  I appreciate the sound advice.

While this is probably a wild goose chase, I wouldn't mind playing this out with the seller a bit (for my education at a minimum) and pursuing what you say about making an offer for the land only and letting them keep the trailers. If pad rent for the 4 trailers is say $1,000/month, what would be an appropriate offer? It's on public water and septic tank. The owner says the septic tank has recently been pumped, but I don't have information yet on the condition of drain field. The driveways are gravel and appear to be in pretty good shape. Taxes would be around $500/year for the land only. What expenses am I missing? I would likely make a cash offer and finance with a personal HELOC, currently at 8.5%. Thanks!


 Hey Joe!
Basically these would be your expenses on a TOH (tenant owned home) park. Property taxes, liability insurance, water, garbage, septic maint., general maint (road, common space, etc) and management costs.  Lets just do a thumbnail breakdown.
* Taxes- you said $500 per year.  Cool- you got that number.
* Liability insurance- play it safe... say $600 a year.  
* Water- if you are not billing it back to the residents most utilities have a base rate then a usage charge over the base usage allowance.  You can call the utility and find out but lets say $25 per month/ per home.  $100 per month.  If you bill it back (recommended) to the residents it would be zero.  If the owner pays it... then you use this expense in your negotation of price- then bill it back once you buy the park.
* Garbage- same as the water.  Say the expense is $100 per month (either 4 individual cans or a dumpster).  Again you would get this billed back to the residents pretty quickly but for now lets consider it an owner's expense.
* Septic maint- Yeah... no current cost but if you are pumping say one tank per year at $300 you should set aside $25 per month on the expense. 
* General maint- road gravel, weed abatement, etc.  Just guess at $500 per year.  
* Management- This one gets over looked alot by new MHP owners because you figure I will just do the billing myself, etc.  But you do travel out to the park every month or so and check on things.  There is a cost to that especially if you are staying over night, etc.  Will say that is zero for now but it is something to consider and add into your expenses as you think things through.  

Right now if my math is correct you are looking at $4300 per year in expenses (if you include the water and garbage).  Without water and garbage your at $1900.

Take that $4300 out of your $12000 gross and your at $7700 NOI. If you are going to tie up your capital on something this small as a TOH park you should require a higher CAP rate of 10-15%. 10% cap puts you at $77k; 15% puts you at 51k. For just the park.

$7700 is not a lot of money to be tying up a HELOC for something this small. Not saying it is a bad deal... just small and once you tie up your HELOC you lose that leverage on another park with bigger returns. One thing I did with my first park is I offered the seller a higher price with a lower CAP if they carried the contract. If I had to get outside financing the price would be lower. It worked in my favor. For me... the best negotiating tactic I have is just to show the seller 'my math' and tell them I need a minimum 10% CAP. Hopefully the seller is paying the garbage and water because once you buy the park and bill that back to the residents your CAP rate explodes as does the value of your park. Adds 31 Bp to your CAP at $77k.

One more thing Joe... I am just a Mom and Pop operator.  No investors and fancy algorithms... Not who I am.  Let me know if you have any questions,

Rog

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Joe Mills
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Replied Feb 29 2024, 11:40

This is SO helpful Roger!  Exactly the kind of input I was looking for.  Thanks so much for taking the time to walk through this deal with me.  I'm going to think more about seeing if the seller is interested in keeping the trailers, selling me the land and holding the paper, and paying me lot rent.  As you mentioned in your first post, I would be surprised if they want to go this route.  But think I'll give it a shot.  Thanks again!

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Logan M.
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Logan M.
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Replied Mar 1 2024, 09:01

@Joe Mills be extremely careful on the values of the homes in the total value. If they are not willing to seller finance or if you don't have a bank that won't lend to you just based on the land I would probably pass. Don't get caught in a bad spot.

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Joe Mills
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Joe Mills
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Replied Mar 1 2024, 09:11

Thanks Logan!  I spoke with the seller yesterday and they are only interested in selling the mobile homes with the land and they are not interested in seller financing.  So I'm going to pass.  Just more than I want to get into for the limited upside.

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Replied Mar 2 2024, 12:11
Quote from @Joe Mills:

Thanks Logan!  I spoke with the seller yesterday and they are only interested in selling the mobile homes with the land and they are not interested in seller financing.  So I'm going to pass.  Just more than I want to get into for the limited upside.


 Joe,
Yeah... you and I figured as much. Maybe let him cool his heels for six months to a year or so and see if he has any 'coming to Jesus revelations? He might reconsider down the road. Having POH rentals is not a complete taboo... I have 14 in my one park but have them maintained well. Of my POH revenue side (not including pad rent in other words) I spend 50% on maintanance of the rentals. The other side gives me pretty nice NOI lift on the overall park. Not saying it can't work... just requires additional caution.

Good luck always
Roger

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Joe Mills
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Joe Mills
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Replied Mar 2 2024, 12:19

Thanks Roger - I'll post here again should anything change with the seller.  Have a great day!

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Karen Hamblet
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Karen Hamblet
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Replied Mar 6 2024, 10:41

Mobile homes do have a book value like NADA, I have used it to value my mobile homes for insurance purposes. It costs a small amount for them to give you a value.  Older mobile homes do have value, even the 1980's models. If set up in a park or on land and in good condition they sell well.  To be moved they go for  less but you can still sell them. We just sold one that tenants had completely trashed that was a 1981 model, to be moved and had multiple offers. Priced it low because we just wanted to move on.  Just research online and usually there are a few used mobile home dealers in your state you can find on Facebook. 

As for newer mobile homes, our appraiser friend told us they depreciate now at the same rate as a new stick built home, about 1 1/2% per year.  

Selling used mobile homes on property or in parks is difficult unless you have cash. We did find one local bank and they would loan on used mobile homes in very good condition in parks or on land, even if they have been moved in the past. Most will only loan on mobiles that have never been moved and were placed new on the property.  

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Joe Mills
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Joe Mills
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Replied Mar 6 2024, 10:55

That's great information Karen!  Thanks!

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Logan M.
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Logan M.
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Replied Mar 6 2024, 13:07
Quote from @Karen Hamblet:

Mobile homes do have a book value like NADA, I have used it to value my mobile homes for insurance purposes. It costs a small amount for them to give you a value.  Older mobile homes do have value, even the 1980's models. If set up in a park or on land and in good condition they sell well.  To be moved they go for  less but you can still sell them. We just sold one that tenants had completely trashed that was a 1981 model, to be moved and had multiple offers. Priced it low because we just wanted to move on.  Just research online and usually there are a few used mobile home dealers in your state you can find on Facebook. 

As for newer mobile homes, our appraiser friend told us they depreciate now at the same rate as a new stick built home, about 1 1/2% per year.  

Selling used mobile homes on property or in parks is difficult unless you have cash. We did find one local bank and they would loan on used mobile homes in very good condition in parks or on land, even if they have been moved in the past. Most will only loan on mobiles that have never been moved and were placed new on the property.  


 This is correct, I do believe it is a paid service to access, correct?

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Replied Mar 7 2024, 08:52
Quote from @Karen Hamblet:

Mobile homes do have a book value like NADA, I have used it to value my mobile homes for insurance purposes. It costs a small amount for them to give you a value.  Older mobile homes do have value, even the 1980's models. If set up in a park or on land and in good condition they sell well.  To be moved they go for  less but you can still sell them. We just sold one that tenants had completely trashed that was a 1981 model, to be moved and had multiple offers. Priced it low because we just wanted to move on.  Just research online and usually there are a few used mobile home dealers in your state you can find on Facebook. 

As for newer mobile homes, our appraiser friend told us they depreciate now at the same rate as a new stick built home, about 1 1/2% per year.  

Selling used mobile homes on property or in parks is difficult unless you have cash. We did find one local bank and they would loan on used mobile homes in very good condition in parks or on land, even if they have been moved in the past. Most will only loan on mobiles that have never been moved and were placed new on the property.  

 Wow... I stand corrected.  I guess you are never too old to learn something new.  Thank you for the insight.  I will though defer back to my original comments and those by @Rachel H. and advocate for caution. MHPs are income stream investments and valued as such. When you start including the rental side of a POH home in your income stream you seriously risk overpaying for a home particularly if it is pre HUD, worn out and neglected. @Joe Mills original question was about exploring a retail value of a mobile home that was to be removed from his property.  Certainly you can get resale and assessed values of homes sitting static on a lot based on comps and market conditions.  If you start trying to sell a home that has to be removed- you are now in a very different situation that very few guides, tax assessments or insurers will be able to provide insight.  I believe the guide of good common sense should prevail.