Mobile Home Park Possible Purchase Assistance Needed

8 Replies

Hello Community, my partner and I have been working on a MHP deal for a a couple weeks now and would like any advice anyone has on it.

-asking $350k (which is negotiable)

-22 spots (with expansion possibility)

-80% occupied (0 park owned)

-current lot rent: $230/month

-separate meters for utilities

*the lot rents can easily be raised to $300, I got current cap rate at 17% and if raised to $300 it would be 22%. Unfortunately, it is not public sewage, Im wondering about the possibility of someone inspecting condition of septic. Also, I know environmental issues can be a large problem, if anyone has any advice on that subject it would be much appreciated! Manager lives on site in a house (not sure if she pays anything). 40%expense = current:$303,600.00 @$300/month : $396,000.00

Thanks!

@Justin Escajeda , congrats on finding something that's of interest. Do you have the property under contract? What are the financing terms? What are your questions?

No, I do not have the property under contract, pretty much still negotiating. However, I am the only one who has shown any interest in the park as of yet form what he says. He hasn't advertised the park or listed it, this was kind of a the know someone he knows deal.

My questions come from my lack of experience buying a park. Im not going to over analyze this to the point where it takes me a year to commit, but I just wanted to know if there was any other analyzing strategies that I haven't used that could help me judge if this was a good/bad deal.

My main concerns were determining any environmental issues, having septic checked, and overall how do the numbers look.

So if your concern is with infrastructure let me jump in... first off, private utilities can be a bit scary. Things I look for off the bat are the 'what ifs'. What if it fails, what if part of it fails. You will apply a creditably probability to this by having it inspected, and by knowing via the city, county and state what your allowed to do if things go wrong. Fixing things requires at the very least space. Space for a new system, or space for pipes that lead to public sewer. The big questions is, how far away is public sewer (water?). Parks with private utilities always trade at higher CAPs, though it seems your buying this one at a high CAP if the numbers hold. That said- you must keep valuing it at that high CAP, and without really knowing about the infrastructure, it might never be worth more than an 18 CAP.

So who does this- I would hire the local septic guy that services the park. I would require all the tanks be pumped and inspected, I would want to know how the fields were constructed and how that compares to what is required today. I would have quotes in hand to repair / replace tanks, field lines, complete fields and what ever backup plan you would need via the research through the city / county / state.

If you need to replace what you have with a packing plant- if you can even put one in, figure $500,000 plus lines to the plant, and from the plant for the finished water. Then figure your paying an operator to run the plant there after... that is a rough number, but it is in the rough ballpark.

I once did due diligence on a park I knew had to be on public sewer because there were no tanks or fields. Onsite I learned the homes were built on the fields, and no public sewer was available. 90 seconds later, I was off the phone with the guy that hired me and heading back to my hotel, that is a no go from the start. Make a list of deal killers, and if you hit one- walk.

No, I do not have the property under contract, pretty much still negotiating. However, I am the only one who has shown any interest in the park as of yet form what he says. He hasn't advertised the park or listed it, this was kind of a the know someone he knows deal.

My questions come from my lack of experience buying a park. Im not going to over analyze this to the point where it takes me a year to commit, but I just wanted to know if there was any other analyzing strategies that I haven't used that could help me judge if this was a good/bad deal.

My main concerns were determining any environmental issues, having septic checked, and overall how do the numbers look.

@Jim Johnson

thanks jim, I know that the public sewer is much more desirable for me and seems to be common knowledge. There is however, a sizeable amount of land included in the purchase, the owner assures me all septic tanks have never given him any trouble (I will take that with a grain of salt). I mean in your opinion, do you feel that 290-300k is a more reasonable asking price even though there are slightly higher cap rates? Just not sure, analyzing these parks is a whole new animal to me, thanks.

Justin,

There is so much that goes into value in addition to just income and expenses. I can not even ballpark the umber without much more data, and a good hour to look at demographics and comparable. The bottom line is you must be very careful when you buy private utilities, and you should not be paying top CAP rates for parks with private utilities. Even if they are great now, when something goes wrong, and it will, they are a pain. Hard on your time and you pocketbook.

Originally posted by @Justin Escajeda :

I got current cap rate at 17% and if raised to $300 it would be 22%.

Thanks!

Would you show your NOI calculations? Where are you getting your cap rate comps and what are they?

I def understand Jim, basically an unnecessary risk is what I am gathering from you. And believe me, you are not the only one who has told me this. Im going to have to go with the majority on this, I really do not want to come out of pocket for something like that.