Value Add Park- Deal or No Deal?

5 Replies

An off market mobile home park acquisition opportunity was discovered in our area through cold calling. The home is in a rural setting about 20 minutes away from a mid-sized MSA in North Carolina. A little bit of information on the deal:

52 owner occupied lots renting at $190/month. 28 vacant lots. No park owned mobile homes. Market average for lot rent is around $250/month. Comparably sized market rate apartments in the area run at $600+ per month. 

The park is on city water but has septic tanks for sewer. Park pays all utilities currently, but it would cost around $25K to have all lots metered. 

Total NOI currently is $86K. We negotiated purchase at a 10% capitalization rate but have a very long lead time (18 months) during which we could fill the vacant lots prior to closing. No seller carry available on this one. Demand for homes in the area is high based off of phantom ad posts, but we have no experience in buying and selling mobile homes.

My questions:

1) Does the acquisition make sense at the current cash flow?

2) What is the best way to increase the occupancy of the park? Buy new homes at wholesale and sell them on the vacant lots? Purchase used homes in surrounding parks and move them to the property for sale? 

3) There are an additional 10 acres of virgin land at the back of the park that are permitted for pads. In the current municipal market, I don't think that we can use the land to accommodate more trailers. Any suggestions for what we could do with this? Is it worth valuing at all? 

Thanks for any advice that you can offer in advance! Info on more deals to come. 

@Matt P. Where does the 86k NOI come from? Seems very high for a park that only has 52 occupied spaces renting at $190/month and the park paying utilities.

For filling spaces it normally costs me around 10k to bring a home in. This would be $3-5k for the home and $5-6k for the move/install. I can typically only sell the home for what I paid not counting the move/install costs. They aren't recouped. Normally you will have to do this to fill the park as the people that are moving into these homes can't afford to move them. There are definitely other ways to get homes into the park but this is the only way I've done it so far. Also, the $3-5k is for a single wide home normally built in the 70s or early 80s. A nicer/newer mobile home will probably cost you more money.

We tend to stay away from parks with master-metered electric and gas. They are rare, but they are out there. You might want to contact the electric and gas companies to verify that the park is master-metered, and if so, ask them what it would take for them to take over responsibility for the lines. You run a big risk that the gas lines go bad and the park has to be re-piped. That's a big CAPEX. (My be cheaper to help residents swap out their gas hot water heaters and stoves to electric ones.)

Run your test ads.  Don't touch a park that does not yield at least 20 responses/week off CraigsList.  

It'll be nearly impossible to find mobile home owners to move in their own homes and infill your park.  We only own one MHP that is infilling with people moving in their own homes; our CL ad pulled 68 responses/week.  So you'll most likely have to buy MHs yourself and move them in.  Older ones are indeed much cheaper.  They also attract a much, much rougher tenant - especially in the south.  You may want to consider buying ~15 year-old homes for ~$10k - $15k.

Really you need to attend Frank and Dave's Bootcamp before investing a dime in the MHP business.  There is just so, so much to learn.  I could write all day here on BP and still only scratch the surface.

To your continued education,

-jl-

P.S. My BP podcast on MHP investing:

http://www.biggerpockets.com/renewsblog/2015/02/26...

No company avatar mediumJefferson Lilly, Park Street Partners | 415‑691‑7138 | http://parkstreetpartners.com | Podcast Guest on Show #262

Thank you for the advice, Jefferson and Aaron. I continued to perform due diligence as suggested and have the following to add to my original post:

1) $86K NOI comes from $125K gross revenues minus $39K park operating expenses, verified through company prepared financial statements and annual tax returns.

2) Homes that are between 10 and 20 years old in the market are currently running at an ask of $10-13K, which is what we will be targeting per Jefferson's advice. Our test ads produced 13 calls in the first day, which we took as a sign that market demand is very high. 

3) Electricity and gas are submetered, whereas water is master metered. We think we are looking at about $25K in CAPEX to get it submetered.

4) Review of county DOT records show that there is a new freeway under construction that will have an exit two stoplights away from our park when construction is complete at the end of next year. This will make our park much more accessible to the larger MSA, which is currently 20-25 minutes away by country roads.

I appreciate your guidance on the transaction! We continue to be optimistic that this will be a great opportunity for us. 

ok,have not yet owned a mhp, yet, so, rookie alert!  (J lilly, your podcast is awesome).  Do you mind if I ask where all that income is coming from?  $190x24 rented lots (the rest you said are vacant) x12 months=$54,720 before expenses.  Did they sell some houses?  What am I missing? Did I do the math wrong?

Dawn, you didn't do the math wrong, just used the wrong inputs. Current occupied lots = 52, down from 55. There were a few older homes on lots that were vacated over the past few years and they were disassembled and hauled off to the dump since the county forbids moving homes over 25 years old.