I think I found a deal on a MHP...need input...

17 Replies

I'm currently in the initial phases of talking with the owner, but here is what I know so far:

  • Rents are about half of market...owner is aware of this.  He hasn't raised rents in over 10 years as he prefers to keep the park at 100% occ.
  • There is room to more than double the size of the park.
  • Owner is willing to finance!!
  • The town in which the park is located is very small, only about 12k people.  However, 20 mins down the road is a much larger town with about 200k people.  In between these two is a military base.
  • The park's current NOI is around $60k...or so I'm told - don't have new numbers to verify that yet.
  • About 2 dozen park owned homes.
  • Most residents have been there over a decade, some 2.

What I don't know yet:

  • How easy it would be to raise rents closer to market rent...and how long it would take.
  • Need to run a test ad in both the small town and in the large city to see what kind of response I get.
  • The actual terms that the seller is looking for...for example...I have seen or been told about 5 different prices for the park...steadily decreasing.
  • Have done no DD yet.

Based on just that...gut feelings?  I'm getting excited, but trying to temper it with the fact that there are still question marks.

There are a million parks - don't get excited over any one individual one.

You haven't told us a few critical factors in valuing your park:

1 - What the lot rents are

2 - How many lots total there are

3 - Are any of the park owned homes vacant, and if so - how many are vacant?

4 - What are the ages of the park owned homes - and how much is the seller asking for them? They should be valued separately from the park as a whole to keep your numbers straight.

5 - What is the water/gas/electric/sewer situation?

Few issues that are pit falls for small parks in Florida:

Review the lease and then review it again!!!!  AND confirm that all homes (a point many miss is that leases are specific to home site and NOT the home owner) have the same lease or you could get burned badly!  In Florida (only know Florida rules) you will find caps in the lease and verbiage about going to market rent only on certain occasions.  This could mean you buy today but cant raise rents to market for 10 years!  I would get a good lawyer (Jody Gable at Lutz Bobo,etc is among the best in FL and covers whole state) and have them do an initial review. (Tell her you want the Ed Hamill discount).

Confirm with the city or county that the community is not plotted.  There was a time when you had to provide a plot plan to the city/county.  Owners did this and then went ahead and did whatever they wanted anyway.  Now, when you go to replace a home you get hung up in permitting and are required to replot the whole park (last time I consulted on one of these, it cost the owner 100s of thousands because he didn't listen to me in coconut creek!)

Finally, check with the FMHA to see if the park is a member and/or if they are aware of anything about the park.  They are a great team (FMHA dot org)  *Disclosure - I used to be a board member, so I am biased.

I have probably been in the park you are looking at.  Feel free to shoot me a message.

as @Chris Reeves said, you need all the other variables....

Lot rents, number of occupied lots, 

(the ability to expand is usually worth zero...... and thats what you you need to value it at) 


More info on utilities ....


Lets stay away from gut feelings for the moment and work off hard numbers.

Also, it would be extremely helpful to know where the seller wants to be at price wise. 

Update us with that info so we can see if this is worth looking into further. 

@Ryan Doyle

  sounds like the seller might have found you.

listen to the locals..  I am hearing rent control.. lack of obsortion, platted vs non.

each state and probably county has different rules. lawyer who specializes is good.

Plus a very long talk with a local city planner that is free

Granted I have not purchased a MHP, but in my multil family experience when we're helping a client determine the go or no go of a deal we like to start with settling either on a sales price or determining what the sales price should be offered. NOI and occupancy is not very relevant if the purchase price is out of line.

If they wont settle on a sale price you have back into the value with a review of the rent roll and operating expenses...certified by a CPA or similar. The other thing I caution clients is NOI is generally minus the debt obligation so just because you may get a 10 cap on paper, if you're debt takes a chunk of that the actual return could be less than stellar

The plus side is increasing the rents.  If the Owner hasnt increased rents in 10 years to keep 100% occupancy, most likely the leases either renew month to month or they sign new 12 mo leases and the terms probably arent all that complicatied so increasing income value may not be that difficult.

Sounds like the deal may have some merit and I'm sure you know the details of which comments have been made so proceed cautiously and keep us posted on the progress

@Ryan Doyle

Please tell me this is not the same park another investor 'almost' bought b/c it had a lagoon septic system?  What are the utilities for the park?  city water & sewer or septic & well?

Owner financing can be a great deal but it can also mean the owner is not prepared to show you the full financials (they often done have them and under report income to the IRS) or there could be some 'surprise' infrastructure or other issues that an appraisal and professional inspections will uncover but a quick OF due diligence period might not.

Definitely talk to city/county officials to see if permits are needed to operate the Park.  Are they transferable or renewable?  What is the attitude of local officials to the Park?  Is it a Policeman's nightmare or is it quiet with no issues?  Look at the police records for the property as well as the local newspaper to see if there is any talk or rumors of local employers closing shop. Talk to folks at the Chamber of Commerce to get the scoop on the area's economic forecast and how other businesses see the future of MHPs in the area.

We just had two cases of older Parks being run out of business b/c the new City Council created so many new ordinances there was no way the owners could afford to become compliant with the new rules.  Also make sure none of the tenants are relatives of the owner!  or if they are make sure they are willing to sign new leases with a new owner.  We've had several cases where a relative was living in the park rent free and when sold it created all kinds of problems to get them out.  In one case, the Seller arranged for a six month free lot rent for his son only later did the new Owner find out the son was also a registered sex offender!  Another Park had to spend over $15k to evict relatives who were living in the park when the owner passed away and the new owner purchased the park from the estate.  You can never do enough due diligence and it pays to pay for it now instead of discovering a big issue later.

Good luck!

Thanks for the replies...

Not sure how well I can answer some of these questions, but let's see.

  • There are currently 96 platted pads (have not confirmed yet)...the front half has actual pads and utilities...the back half is treed land.
  • 26 are filled with park owned homes...6 more are tenant owned....16 vacant lots.
  • Currently at 100% occ...or so I've been told.  Rent roll is 5 years old.
  • Owner is only charging $100 lot rent.  And POH rents are less than 1/2 of market rent.
    • Another park in the area's lot rent is over $250.
  • Using all income (lot rents and POH) the Cap rate is at 19!
  • Using Frank and Dave's Sky High formula...the park is a little over valued at $300k..but that's because of the extremely low lot rents.  Raising those just $35 puts this park right in line with that number, and there is still room to raise rent.
  • Park is in GA, so I haven't seen it yet...but am planning a trip up soon.
  • Homes are likely older...park was built in 70's
  • Separately metered utilities, but each home has it's own septic.
  • Checked the Flood map, doesn't look like an issue.

Even doing OF, I plan on doing full DD...or mostly anyway.  Most of the possible issues brought up sound like cautionary tales in general...and issues that should be mostly flushed out during DD.

As the numbers run as is...this park will make money.  With a little bit of DD and paperwork...raising rents, converting POH to tenant owned...I think this park could make even more and be less management intensive very easily.

Your park is not 96 spaces......

(26 +6+16) .  It sounds like your park is a total of 48 space and 16 vacant so in other words 67% occupied.  Im not sure where you are getting the 100 from? 

100 lot rent could be low but you say "another park" is this a similar park? Does it have amenities? How far?  Are other parks in the area 250?  Some of those outskirt areas can run lower lot rents but you say you are by a larger metro so that may not be the case. 

You keep referencing a cap rate........ I have yet to see a price in this thread. The other thing that you are doing is taking the NOI

You have 32 occupied spaces x 100 lot rent 3200 a month x 12 so 38,400 on gross and say 40% expenses so maybe 23k NOI ? Plus some value for homes. It looks like your capping home income in whatever calculation you are doing which is literally one of the worst things you can do because you will pay 20 grand for a run down home thats worth zero and you will do it 26 times over.....


I don't think Frank and Dave have a "sky high formula" and i feel like you are missing the entire picture here. 

There are no cautionary tales, there is a specific methodology to get everything down here......  


I would caution you to get educated on what you are doing so you can fully understand what is going on here before proceeding with this transaction...

You say the park will make money.  You have not even indicated what the owner carry terms are because that in itself and cause you to not have positive cash flow as an example. 

It may be a good deal if the market rents are 250 from current 100 but based on some of your responses, i feel that you really need to get a better handle on all the moving parts here. 

Edward Hamill Hi Ed! You seem to know a bit about Mobile homes. I recently ran across a Mobile home in PB co., and I found something that I ran across in Lake Worth area as well (they are SFHs and leased individually).,What I'm needing to know is how do I find out if these "converted" properties are permitted? This will be my first purchase and I'm concerned. I don't want to run into permitting problems but want to be educated on such issues. I asked the owner if the property conversions were permitted and his answer was he bought the property like that. It was a 3br/3ba individual lease with separate entrances. Thanks Victoria C. Lorick
Originally posted by @Victoria Lorick:
@Edward Hamill Hi Ed! You seem to know a bit about Mobile homes. I recently ran across a Mobile home in PB co., and I found something that I ran across in Lake Worth area as well (they are SFHs and leased individually).,What I'm needing to know is how do I find out if these "converted" properties are permitted? This will be my first purchase and I'm concerned. I don't want to run into permitting problems but want to be educated on such issues. I asked the owner if the property conversions were permitted and his answer was he bought the property like that. It was a 3br/3ba individual lease with separate entrances.

@Victoria Lorick

  go the horses mouth... IE the planning department of the city or county were the property is located... any other advice is worthless really ... that's were one should always start their due diligence when you have land use concerns and permitting concerns.. you start with the authority over those ... then you can get lay persons opinions  :)

This isn't the one in Cusseta is it?  If so, I looked into it as well.  I said no due to a number of reasons but my main concern was the town.... The town was just bad. Negative growth and a high vacancy rate...  One major employer, an army base, that was on the cut list a few years back.  This would be a fixer up and not something I would want to gamble on for my first MHP... (or second) 

Do your DD and run the numbers.  If you truly believe it can work...  then go for it.  Just understand it will take some work... and luck.  High risk equals high reward... But it can also bankrupt you.  I would personally move on but thats my choice.  Best of luck.

Originally posted by @Watson Smith :

This isn't the one in Cusseta is it?  If so, I looked into it as well.  I said no due to a number of reasons but my main concern was the town.... The town was just bad. Negative growth and a high vacancy rate...  One major employer, an army base, that was on the cut list a few years back.  This would be a fixer up and not something I would want to gamble on for my first MHP... (or second) 

Do your DD and run the numbers.  If you truly believe it can work...  then go for it.  Just understand it will take some work... and luck.  High risk equals high reward... But it can also bankrupt you.  I would personally move on but thats my choice.  Best of luck.

 One thing I have found with parks is that you can achieve "high" reward without high risk.  Granted the park has to be vetted etc and this is not an excuse for negligence but I think many parks that are, or have the ability to produce relatively higher returns can actually have a lower level of risk , at least that is how I would perceive it in some case......

Originally posted by @Victoria Lorick :
Edward Hamill Hi Ed! You seem to know a bit about Mobile homes. I recently ran across a Mobile home in PB co., and I found something that I ran across in Lake Worth area as well (they are SFHs and leased individually).,What I'm needing to know is how do I find out if these "converted" properties are permitted? This will be my first purchase and I'm concerned. I don't want to run into permitting problems but want to be educated on such issues. I asked the owner if the property conversions were permitted and his answer was he bought the property like that. It was a 3br/3ba individual lease with separate entrances.

Thanks Victoria C. Lorick

 Sent you a private message/colleague request.