Out of the blue mobile home park potential purchase...need basic help

7 Replies

Apologies in advance for a question that has likely already been asked/answered but I need some quick general guidance as to questions I should ask a potential seller of a MHP. I am meeting with him Friday morning.

Here is the background:

I am a very experienced SFH investor. Never have done a bit of research into MHP investing until now. However, I grew up in the Mobile Home business (family members did sales lots, service, manufacturing) Again I know relatively nothing about parks as investments.

This deal was connected to me via word of mouth.  Seller wants out, after 20 years, as he plans to use the money to build a few small apartments on some vacant land he owns in another town. He says the park has been a "gold mine" to him and his family....whatever his definition of that may be.

Property details:

Asking $218K

10 acres just outside a small town of 6K in the central plains part of US and on the outskirts of a larger .5 million metropolitan area. The property itself is about 2 miles "out in the country" from this small town. 3 miles from a "Super Walmart" :)

23 current mobiles (100% occupancy - but room for more pads)

  • 16 are lot only
  • 7 are 'owned' by the tenant with mortgage payments to the owner.
  • 0 owned by park

I asked him to send his financials and he emailed me a scanned list of the receipts from last month.

  • $3750 lot rental
  • $2125 mortgage payment receipts
  • $5875 gross rev/mo.

A rough estimate of an undeveloped acre of land in the immediate area is about $5K per acre.

No expense information yet, so obviously that is in my list of questions/due diligence.

I know his taxes are <$800 year.

Gravel roads

New DEQ approved septic system

County services (not the nearby town)

What are the questions I need to be asking at this initial meeting?

And as a further step, what kind of numbers should I be looking at for MHP investing that will help me determine a purchase price?

Cap Rate >15%? >20%??%

Monthly gross income/total acquisition cost > 2% higher?

Gross income multiplier <?

New DEQ approved septic system

Again, what types of numbers should I be looking to find answers for and what are those general targets given what little information I am providing?

Thanks in advance.

@Nicolas Franckenfeld to start with you should only be concerned with the lot rent to determine the value of the park. Using the info you provided it looks like each space rents for $235.00 a month. I use this formula to determine value. Lots X Rent X 12 (Months) X .65 (less 35% expenses) / .10 (10 CAP Rate).

It should look like this: $235.00 X 23 X 12 X .65 / .10 = $421,590.00. So it looks like the seller is offering the park at 19 CAP already.

Expenses typically are about 35-45% depending on several factors. As you indicated you are already going to get his actual expenses, so that's good.

Most parks have paved roads but at a 19 CAP rate it looks like a good buy, however, if you want to pave the roads in the future that could be a very expensive capital improvement.

You want to know who pays for water and where it comes from. Is it sub-metered to each home and do the tenants pay for their own. If the park pays for water it can be costly and tenants are not conservative if they don't pay for it. City water is best.

You should also find out about the electric. Is it sub-metered or on a master park meter, which is not a good thing. If it is I'd call the local utility and inquire what it would cost to sub-meter the electric and see if they will do it or if you have to hire an electrician to do it.

Inquire when his lot rent was last raised and if you have time call around to the local parks and see what they are charging. Pose as a potential tenant and you'll get more info this way.

Last item would be the size of the lots. Since the park doesn't own any homes it's not an issue, but should you need to bring in homes at a later date you want to make sure you can get a modern single or double wide house on the lots.

There's a bunch of other stuff in regard to buying a park but this will get you started. If you go to www.mobilehomeuniversity.com you can buy their book on 30 Days of Due Diligence. It will tell you everything you should do once you are under contract and sign up for their boot camp. I went twice and you'll get a lot out of it. Good luck!

Thanks Bruce.

One issue I forgot to mention is that the properties are in bad shape, very bad shape, and the owner-occupants are down-right scary.  The homes appear to be at end-of-life.  Normally this wouldn't bother me too much because I don't own them, but I feel as if 1) it would prevent me from getting new/better trailers in the park and 2) if I raised the lot space rent (or even if I didn't) the owners would just walk away and leave me with their pile of junk.

Not sure how I should discount the above or, if it is a deal-breaker at any price.

Suggest you walk. Most info you give is negative. Already you are afraid of the renters as probly they control the park.  It will get worse  just after you get the park. Guaranteed!

@Nicolas Franckenfeld with that added info I'd say walk away too. The price he's offering the park is a huge red flag. The owner just wants out of his headache and is hoping you'll be the guy to do it.

Well, the 'scary' part was more in reference to the condition of their homesteads.  Although I am sure there are some unsavory folks in that park.

The only known negative at this point is just that....these homes (most of them) are in a horrible state of disrepair.   How much should that play in to any potential offer?  Again, the park doesn't own any of them yet there are definite downsides to them being in that state.

Do folks regularly simply walk away from a mobile that they own when it reaches such a condition? 

Nicholas -

Before you buy a MHP you really, really need to get educated first.  Attend Frank & Dave's bootcamp.

Also, although no substitute for a weekend-long Bootcamp, take a listen to my podcast here on BP: http://www.biggerpockets.com/renewsblog/2015/02/26...

But a few thoughts:

* Odd that the park is 10 acres but only has 23 pads.  Most MHPs have a density of 10 homes/acre.  If you've got 10 acres, you should have a 100-pad park.  So are the lots very large?  Or is the park 77% undeveloped?

* Don't develop vacant land.  It has no value to you and is too expensive to develop and then buy mobile homes to buy and bring in.  MHs can not (usually) be financed, so you'd have to come out-of-pocket to acquire homes.  

* See if you can reduce the purchase price and let the seller keep the vacant land.

* Septics only last about 25 years.  We tend to stay away from them and only purchase parks on city water and sewer.  For your first park, I'd recommend likewise.

* The poor home conditions are a big red flag.  Your park is out in the middle of nowhere and can only attract low-quality renters.

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

Originally posted by @Nicolas Franckenfeld :

Do folks regularly simply walk away from a mobile that they own when it reaches such a condition? 

Yes.  It's expensive to move a mobile home.  Depending on the shape of the home most parks will pay people to haul that junk away.  I know some people who take these abandon homes, fix them up and re-rent them as well. 

The problem with renting only the lot is that it's difficult to control the tenants.  If the park owned the homes then you control, at an expenses, the tenants and appearance of the property.