MH Park Analysis
Hello all,
I am considering investing in my first MH Park. It is a 17 Pad site with 10 PARK OWNED homes. 8 of these 10 homes have been completely remodeled in the past 6 months; a nice job remodeling without being extravagant. The other 2 homes are on-site and will need roughly $7k of remodel each to make them Rentable. This park is a plane ride and rental car away from me so obviously not perfect. There is a local manager/handy-man that has done a nice job for the current owner.
There are 9 pads rented at an average of $170/Pad plus all 8 remodeled homes are rented at an average Rental of $250/month in addition to the pads. Total current monthly income is $3,500.
Pad expenses, including the total burden for park taxes, insurance, utilities (city water and sewer paid by the tenants), property management, my travel (6 trips/year @ $500/trip), snow removal, mowing, small advertising, signage, and road maintenance budgets. Expenses total about $900/month for a total NOI for the pads alone to be $7,000/year.
As all the current homes have been very recently remodeled (gutted), home expenses are estimated at $100/month/home for deferred maintenance into a Maintenance and Repair budget; total home expenses - $800/month.
All totalled: the NOI as it currently stands is $22,000/year.
I can buy this park, and the homes, for $200,000. The Owner is willing to finance 100% of the purchase price at 6% for 15 years. My debt service would essentially be equal to my monthly NOI. There will be no early payment penalties.
If I close this deal; I would spend money to remodel the remaining 2 homes on the property ($16,000 remodel costs) and increase my NOI by roughly $600/month when these two homes and lots were rented. Once these 2 remodeld homes are rented, and equilibrium , established, I would either rent the remaining spaces to other home owners or buy and rent more homes to fill these spaces as the marked demands. Over time, I would sell off each of the homes so that in a few years, I will own the park out-right, I own no homes, and I have 15 +/- lots rented for my goals of long term passive income. (if I don't sell it off before for more money in a 1031 exchange for a larger, more lucrative park. I am investing for passive income in 10 years. Cash flow is not important to me now, as long as I'm not writing a check each month for this park.
OK all you Mobile Home Park experts: What do you think?
* $200,000 purchase price
* 0 money down
* 6% interest on a 15 year note (worst case)
* Expenses accounted for including $100/month/home in deferred maintenance savings (on newly remodeled homes)
* 10% Cap Rate
* Monthly net income before financing = Monthly debt service (1.03 Debt Coverage Ratio)
* Large, manageable upside with the opportunity to add 9 more pad and/or home purchase and rental. (Potentially, another $24,000 NOI on the upside.
Honest opinions? Any advice to offer?
Thank you! Sam