Hello all, I am looking at a 13 unit park to invest some of my self directed 401 in. It looks like a decent deal, but I am wondering what you would recommend for an offer and how to best finance to maximize return. Or should I just pay cash for the whole thing with the 401. Details are as follows:
Purchase Price: $127,900
Land Size: 1 Acre, plus an additional .87 acre lot to the North of the site.
Mobile Home Lots: Income: $2195 per month,
Expenses: $450 per month, Owner pays for trash, sewer, water, taxes, and insurance.
Tenant Expenses: The tenants pay all additional utilities.
The property has very good cash flow; all lots are occupied at this time except for one and tenants own their trailers.
#1 ? vacant lot
#2? $175/mo. 4 mo.
#3? $135/mo >6yrs
#4? $175/mo >6yrs
#5 ? $175/mo >6yrs
#6 ? $175/mo >2yrs
#7 ? $175/mo >4yrs
#8 ? $175/mo >6yrs
#9 ? $175/mo >6yrs
#10 ? $175/mo >3yrs
#11 ? $175/mo >6yrs
#12 ? $175/mo >3yrs
#13 ? $160/mo >5yrs
Well Water: There is a well on the property, but the water to the trailers is city water.
Sewer/Water Line: The Seller owns the main sewer line
Seller also owns the sewer lines underground going to each mobile home. Seller owns the water lines from the city main to the lots. Each mobile home has its own water meter, which is owned by the Seller. The tenant is
responsible for maintaining cleaning sewer lines from their home out to the park’s main line on Pearl… The Seller maintains cleaning the main sewer line. If any of the sewer lines need further maintenance or repair, the park owner is responsible for that.
Is there water in the street so if something happened to the well, you could connect?
Have a plumber run a camera down the sewer line to make sure it's in good condition and to see what it's made of.
There are dozens of other questions that need to be asked, but you can start with these.
find MHP brokers. You can as last resort look on loop net for MHP s and call the brokers. As a start by talking to 5 brokers then calling them back you'll learn a list of buying and owning issues to dig into.
@Jeremiah Johnson , have you found a way around some of the restrictions about using self-directed IRA funds? Specifically "sweat equity" and property management? Have you talked with your IRA custodian about borrowing funds and unrelated business tax income (UBIT) taxes? I'd love to hear more from other investors who have successfully resolved these issues.
Expenses: $450 per month, Owner pays for trash, sewer, water, taxes, and insurance. That seems awfully cheap to me for all those lots. I'll guess there is a dumpster on site. So there is city water to each trailer and you pay for that as well as sewage? I know I'm in a different area, but all this for my house runs $70/month and that's not including insurance. I would think insurance for the land with all these trailers on it would be a pretty large liability. Maybe I'm wrong. Have you verified those numbers?
I am using a self directed 401k company to help me. Sense Financial. I am working with them on what is an approved structure for property management. Will post back as things transpire.
All of the figures I have been given are via the listing Broker. I have not seen any official "books" yet, but have requested them. Once I have them I will get back to you on actual hard expenses. It's rural Kansas so they may be accurate.
So you're looking at $1700 a month potential profit before repairs. Who manages it and how do you compensate them? A free lot? Who performs general maintenance such as mowing common areas and picking up trash and how are they compensated? On the surface it doesn't look like much of a money maker depending on how these items are handled and barring any major repairs that will inevitably be necessary.
The property is managed by the owner, he has someone he employs that mows lawns, does minor repairs. The tenants tend to their own snow removal for their individual units, as they own the homes, it is just like any other homeowner responsibility, they just lease the lot form the Seller. The city owns the streets surrounding the park, they are as responsible for clearing streets as they would any other streets in the city.
The additional lot is zoned Single Family Home, as is the Park. The Park is a Legal Non-Conforming Use. The city does not have any issue with the Park, and would easily grant a zoning change if someone wanted the zoning permanently changed or to allow more mobile homes on the additional lot. The lot has utilities to it, but not on it, there is no current infrastructure there for additional homes, mobile or otherwise.
The additional lot is vacant because the Seller hasn’t taken any steps in the past 7 years to do anything with it, he thought he’d put more mobile homes on it or create a self-storage unit facility on it, but hasn’t got around to accomplishing that.
As to the owner carry, the Seller has entertained an owner carry in the past, he does require a strong down, your 30% would be adequate enough I believe, he would probably like a sooner balloon than 5 years, but he’d consider all options.
This is what I just got back.
So- I see your in Denver. First off- if you want to meet and look over the deal- I am available in the mornings, in Boulder. About me- I own 5 parks, I used present at the mobile home park store bootcamps, I moderate a forum for mobile home park investing at another web site, and I get mobile home park investing. That said- I will tell you off the bat the park is too small. It is very hard to make the numbers work for a out of state / area park under 30 spaces. Very, very hard. The expenses are low. For a park that size, your probably looking at 40 - 45% of gross if your running it lean. You have to figure in the things that happen sometimes to understand the numbers, and there is much more than water / sewer and trash... Your on the right track though. I will not try to talk you out of it, but I will be happy to share what I find true to this investment class, and with that info- it might be the deal for you, or might not...
Originally posted by @Jeremiah Johnson :
The additional lot is zoned Single Family Home, as is the Park. The Park is a Legal Non-Conforming Use. The city does not have any issue with the Park, and would easily grant a zoning change if someone wanted the zoning permanently changed or to allow more mobile homes on the additional lot.
The statement that it's legal non-conforming and the City does no have any issue with the park are mutually exclusive. It's non conforming because they don't want it. I think it's skating on thin ice to assume that the additional lot could be added to the MH park without opposition. If you are planning on that, it should be a condition of the sale (that the land is rezoned), otherwise it's just pie in the sky.
I do not agree with the non- conforming statement. If the park is pre-current zoning it is non- conforming to the current code. This might place the park in a zone that does not allow for future mobile home park zoning- but that does not automatically mean the city does not want it. Two of my parks are 'non- conforming'. One, located in Colorado was built int he 60s, and the lots and setbacks are different than the current requirements. So- they have 'special rules' for home setbacks and road widths, different than parks built today. In fact, that city has 3 sets of codes. One set for really old parks, one set for for the middle set, and one set for the parks that were built during the most current set of building codes.
I have zero issues with these municipalities. In fact- the one park I do have issues with the city, I am fully conforming. The city wants to buy my land, at the value of raw land, and I will not sell it to them at that cost.
So not being wanted and zoning are not tied together.
That said- read the code to make sure you understand the rules for placing homes, replacing homes etc regardless of being conforming or non conforming.
You have 12 lots at $175 rent on average, so the formula for the value would be 12 x $175 x 12 x .5 x 10 = $126,000 at a 10% cap rate. This park has high density (13 units per week) and a low net income. Unless the comps show that this park has a lot of upside in the rents, what is compelling about this deal? Your exit strategy is very difficult -- most buyers want a park that is much larger. If you pay cash for it, your cash-on-cash return is only 10%, which is about 50% of what our standard target is of 20%. You can only hit 20% with sensible leverage and a 5 point spread between the loan interest rate and the cap rate (with this park at a 10% cap rate, you'd have to get a bank loan at 5% interest with 20% down to hit around 20% cash-on-cash).
I have never seen this deal, but my bet is that you can do better with your money. Keep shopping.
I'm looking at a mobile home park (new to mobile investing) The park has 8 units and owns all the units. Three years of financials shows 61K of gross income and 36K of net after all expenses. I think I'm getting a good deal at 340K but according to the formula above it should be valued at 306K. At a 340K purchase price it cash flows very well...am I missing something?
I just learned about the mobile home investing boot camp. I am interested in doing that but when I went to log on it didn't show any dates or locations. I'm reluctant to sign up if I don't know when and where it will be. Does anyone have any more info?
As far as the UBIT (Unrelated Business Income Tax) This will typically not apply to self-directed 401K's. I love using these as this is a huge bonus compared to a typical SDIRA Account. Verify with your custodian, but I am 99% sure there will be no UBIT when using your 401K.
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