Hey everyone, I've been on this site countless times and have come across great information so I have finally joined up. As I mention in my "about me" section I'm new to real estate but had done quite a bit of research into buying a multi unit home with 25% down. I've since become more interested in obtaining a commercial loan with 70% non-bank lender, 20% seller carryback, and 10% down payment. I figure if all works out my capital could do more for me this way.
If you wouldn't mind giving me your opinions or advice on what to look into further, below is the current property/situation I've been interested in:
Park with an asking price of 800k
42 of 48 units occupied, Road is paved, units skirted
All units owner occupied, ave $300/unit
About 140k income with 35% expenses of about 50k
The realtor provides an Income/Expense NOI as 90k. (The mortgage broker I've been working with had me divide 90,000/.1 to get 900k. He says this is how the lenders would come to the value that they will provide up to 70% of.)
Seemingly good cash flow
Some room to improve occupancy while still being okay if I can't fill the last 6 plots
Seller willing to finance 75% at lower rate than non-bank lenders (I would only have 10% to put down here though so would still probably need to go with non-bank lender 70% and seller carryback 20%
Included in expenses is park manager (who is Certified WW and WS operator) and office manager
Realtor says fracking in the area is bringing more people who will need somewhere to live but I couldn't verify this anywhere online so I took it with a grain of salt
Apparent reason they are selling is because the park was inherited
Park is 40 years old and has private sewer and water system (about 10% of expenses go to this including the manager)
Park is in town with population of only 6k. About 20 miles (20 minute drive) of the county seat with population of 20k (large enough for a Wal-Mart). 20 minutes from another town with 20k population. Too far from too small of towns?
Seemingly great cash flow, self-managed and the seller is willing to finance up to 75%... Too good to be true? Why wouldn't they just hold on to it and keep collecting?
*Obviously I would need to confirm the given numbers, but assuming they're accurate any advice you could give a first time MHP buyer? Anything else to consider?
I had a couple other questions/concerns and I'm sure some more details I can give, but I have a flight to catch at the crack of dawn. I will be out of the country for the next week on business so thank you in advance to anyone who can send any advice my way. Hopefully I can access the forum while abroad!
Fracking? This is a bad time to be relying on it. If the economy is based on it...
Pop is on the small side, is it a solid economy otherwise? What are housing prices? Is the pop growing or shrinking? What's the entire metro pop? Average rent on a 2bd Apt? Median home price?
Certified WS? Is it on a waste treatment plant? If so I'm out at that point. Well water? How big are the lots? Who is paying for water? Is gas/electric direct billed? What rate is he charging for financing?
Would also point out that a park of this size has substantial infrastructure so if you're that short on a down I would hope it doesn't mean you also aren't setting aside a healthy reserve. Price seems like it could be within striking distance of a 10 cap but a lot depends on the answers to my questions and some others.
What are the homes like? Are they all 40 years old? Is it a mix? Are they newer? If you moved 6 newer homes in there could you sell them and fill the lots (adding to your park value)? Are there other parks in the town?
Good deal so far. Assuming city water and sewer and billed direct to home owners.
@Eric F. Dodd Frank throws a wrench into parks selling homes to owner occupants on traditional notes. No work arounds via lease option then deeding the home after X years either. Sun communities has an untested in court process called rent credit where the owner saves up via a portion of their rent to buy any home. Typically it turns out to be the home they live in. In general the process of selling homes a park owner moves in has gotten alot trickier. A needed to do yes, but not like it used to be.
It's a great deal depending on the utilities.
Home age, you want old homes actually. Newer homes the owners have debt on them and parks with newer homes have ALOT higher non-paying lots issues because of owners faling into default on their home debt. A park owner is much better off with 100% non-debt homes which means older homes.
Go to mobilehomeuniversity.com boot camp. You learn about evaluating parks and how to own and manage parks.
I'd be very concerned about the population of the city/town and the metro population. You should look for a park that is in a metro area with at least 100,000 population.
As for why the owners are selling... you answered your own question. They inherited the park and no nothing about it and want to cash out. Many family members view parks the way society does, as the unwanted child and don't want them when but because they are not pretty.
I think the park sounds great so far. I would really need to understand the water / sewer issues. There are many more regulations in the EPA pipe right now, and knowing your system will help you know the costs. As for the town size, I have a 37 pad park in a town of 700... the closest town to it is 20,000. It is one of the best performing assets I have. The big questions is, how stable is the town? I looked at a park for someone toady that has hired me to do such work, and the town had 20,000 people in it in the 40, and is down to 10,000 now. That is a bad trend no matter what size the town. So look at the history, and the trends. Where are the jobs, growing industry or contracting?
your on the right path...
Hey I’m back in the states and can use the web for less than a buck a minute so I’m ready to get rolling again!
First off, thanks so much to everyone who chimed in. I can already tell this forum is going to be a great place with a lot of support from knowledgeable people.
To answer a few questions:
@George Nikolakakos – from what the realtor told me, fracking is not what the community has been relying on but is expected to move more into the area (or so according to the realtor…). I’m working on getting more detailed info on the economy strength and population.
It is not on a large waste management plant but has its own private sewer treatment plant for the park. Yes, it is well water. Average lot size is 40x100.
I have a solid reserves and backup funds if needed. I just want to make the most of the capital I am aiming to put down initially.
Eric – the average age of homes is 25 years. Of the 6 vacancies, 3 of them are stick built. I have some ideas in getting the 3 plots filled. From what I’ve read, once a MH is placed they rarely move many more times. I would offer very generous rent incentives to people just buying a MH to place it in my park along with an incentive to the MH seller to send them my way. Free rent for x amount of time I was thinking…? Then the plot renter is settled there when the free rent runs out unless they want to drop thousands to move…
I’ll have to check out if there are other MH in the town, good thought. How would this sway your position towards the park one way or the other?
Curt – Probably not what you wanted to hear regarding the private water and sewer, but perhaps that’s a bargaining chip to get this at a price worth having to pay a park manager who is certified to operate the WW and WS (his salary about 7% of park expenses with another 3% going towards WW and WS testing and septic tank cleaning 6 times a year).
If just under 4% of annual expenses are from “American Electric Power” I assume the park owner is paying. A possible opportunity to individually meter each plot?
I am also definitely looking into mobile home boot camp. Read a lot of great reviews.
Bruce – the population definitely concerns me, as well. I also do get why someone who inherited the park would see a MHP that way and want to sell. However, in the end, they have a park manager, assistant park manager and office manager collecting rents, deposits, and writing receipts. It seems like they could hold on to it and just keep collecting is all I was thinking. They are willing to seller finance 75% so it doesn’t seem like they need a large chunk of money immediately when they could get more rent per month indefinitely vs my note with interest for a set amount of time. You’re probably right, just thinking out loud…
Jim – I am definitely going to gather more info on the private water/sewer issues as that could be the deal breaker. It’s great to hear the success you’re having on the small town park. Gives me hope that for the right price this could be a winner. I will be doing much more research into the economy and stability of the town this week.
*I will be contacting the realtor and if I can the owner directly to get some answers to the many good questions and issues you all brought up. Any other information you would try to get out of the seller?
I have 2013 income and expense sheet. Maybe ask for the previous 5-10 years of financials if he’s owned it that long? Legit tax documents vs seller furnished info?
Why traditional occupancy rate is only 85% and not higher?
Why can’t he rent out the only 3 stick build houses on the property?
5 years ago, he raised rent $20. How did this go over and why hasn’t he raised it even slightly since?
Any other big questions I may be missing here?
I would echo what you got from @George N. .
I did some research on an opportunity to buy a park almost double that size a few years ago and I can offer this info for you.
- Was told that a park at what would be peak occupancy is considered to be 95% leased space. With this being said and your park size 42/46= 87.5% occupied which means you do have some room for improving park revenue "potentially"
- I could have never financed the deal I was looking at. Owner wouldn't carry and it was about the same price as this park, like 700K or something, would have to get out my notes from the conversation to be specific. However there was a major concern about the infrastructure there as well. The park did eventually sell, twice I think, and it has had some major repairs performed - water system was shot and that is VERY expensive to replace as well as some paving that had to be redone which is also not cheap.
- Parks are becoming more scarce as time goes by, mostly due to municipalities not allowing new park permits to be issued for new park construction and older parks being decommissioned for a few reasons I can't articulately recall at the moment.
That is about all the solid I can do for you. Just make sure you do your due diligence or do it twice if need be.
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