I am looking at a mobile home park to purchase. Details - 29 acre piece of land, gravel roads on property, 80-90 year model homes in well maintained conditioned, 22 homes and one older home, metered power to each home, well water. When I ran the numbers it hit the 2% rule. Actually 2.2%. My question to the seasoned/experienced investors in this arena is this: Do you evaluate the purchase price like a traditional stick built home/apartment or another method. Thank you in advance for your advice. Best Regards.
You'll have to share the "2% rule", never heard of it.
MHP like other investments you need to look at Cap Rate, potential to raise revenue, location - including the surrounding metro area and major employers. More factors than I can list here; your due diligence process will take at least a month and you will uncover more things as you go down the list.
Is the park licensed? does it need a licence to operate? How do the local officials view the park? How often is the well serviced? Are the roads owned by the park? How far are you from the park, etc. I have a list somewhere I'll share when I find it.
MHP are a great niche but the tenants can be very different from other types of rentals. If you haven't attended the MHP University do so ASAP. Especially if you've never owned or managed a park before. For us to analyze the purchase we'll need numbers: purchase price, P&L, current rents, market rents, true expenses to operate, etc. It's all about the numbers - the better your numbers, the easier to quickly find out if it's worth pursuing or if the owners are just way off on what they think the park is worth.
I have a "$3.5mm park" under contract but the owners books are so completely screwed up (they hide all the income from the IRS) there is no way anyone will buy or finance the property. Even after a year of working with them, they still have not taken us up on our offer to have a proper set of books maintained just for sales purposes.
Zack, I have a group of investors who buy GA parks. We might team up.
I recommend the mobilehomeuniversity.com boot camp, both home study version and in person. We did both.
Parks are not treated like SFRs.
All commercial deals need to be evaluated as if you where selling the deal, not buying it. IE think like a bank who would be financing the sale, since down the road that is your plan right?
Since you didn;'t give the needed details I'm thinking you don't know enough about parks to know what is important. Just saying that there's more to know.
I'll assume this park is 100% park owned homes and they rent them out. This is the worst possible park configuration and these rural parks are most likely set up this way. Banks hate park owned homes and will not recognize the home rent as reliable income. Because it isn';t reliable income. You evict or they go empty or get trashed all the time.
Call around to surrounding parks asking about how much is "lot rent". Find parks that the occupants OWN the home and pay the park lot rent.
This is the way to price a park even if all park owned:
You ignore the home rent and price the park as if just lot rent.
(number of paying lots that are actually paying, not just total lot count) x (lot rent for the area) x 12 (months) x (0.7 figure a 30% expense ratio) = NOI
NOI / 0.1 (10% cap rate) + (some nominal value for the home say $3k) x (number of homes) = offer price.
Just guessing at $180 lot rent in Cleveland x 21 x 12 x 0.7 / 0.1 = $317k
I'd offer: 20% down, seller finances 80% at 5% 25yr amortization and a 7 yr baloon.
$63k down. $254k financed at 5% is $17k/yr debt service. Making cash flow = $34k-14k = $16k
or 25% cash on cash. Which is our target for offers (if not a bit higher).
Good luck, curt
I forgot to add in the nominal value of the homes to the offer price of $317k. Add 21 x $3k + 317k for the offer price: $380k. Never price in the land. Commercial sells based on NOI and nothing else.
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