Mobile home lots not in a park?

Question

Hi everyone,

I ran across a package deal of 20 mobile home lots located in a coastal city in florida, which are not in an established mh park but rather just city lots with city utilities, (not contiguous),but scattered throughout a neighborhood that is predominantly trailers with a few site built homes. The homes are owned by tenants and lot rent is $350 a month.The county valuation of most of these lots is around $6500 with yearly taxes under $300. The owner is asking $700k and I am wondering how would one value this package? Is it ridiculous to pay so much more for a city lot cause it has someone elses mobile home on it? What am I missing as a downside to not being in a park?

Thanks for the input

Jeffrey H. · Answer

@Benjamin Pekarekthis was in reference to the following mobile home park tenant laws:

http://www.leg.state.fl.us/statutes/index.cfm?App_...

I agree with you everyone in the SFH and apartment business appear to be better served, and does not apply for this collection of mobile home lots in a neighborhood.  Just an observation those looking at a real MHP.  I would not buy an MHP in Florida based on this.

Will G. · Answer

Ryder, this is why I turned to BP knowledge base on this one, it really left me puzzled: The taxes on these lots are around 280/year, the insurance the owner currently carries is umbrella liability @ $1100/year, city water, city sewer, paid by tenants, mobile homes owned by tenants. I suppose I would have to have a tree service go through the lots once a year, but otherwise can't think of what else(expense wise). Whats weird to me is that they are asking 5 times the county $ valuation,(listed with a commercial broker) simply because someone has their mobile home parked on the lot! Exit strategy seems hazy given the high price paid per lot.

Benjamin Pekarek · Answer

Jeffrey,

I'm not sure where you heard that Florida is a "very tenant friendly state". Aside from commercial evictions, which take FOREVER!, I can get a nonpaying tenant out in 6-8 weeks from the date the 3 day is filed. The only time there is truly an issue is if the tenant has what I affectionately call "a verifiable ...complaint..." (my word works better!).

If a landlord is not up to snuff on their repairs, you're 100% right, the tenant can pay the registry, and stay indefinitely,  leaving said landlord high and dry; however, in my opinion, if the landlord let the unit condition get to that point, they DESERVE to lose their rental income until the repairs are made!

All that said, provided a landlord does what they're supposed to do, Florida takes care of her investors.

-Ben

Jeffrey H. · Answer

@Will Graberthurricanes are a risk everywhere along the gulf coast.  We have all been fairly lucky over the last 10 years or so, but you're right a hurricane can wipe out a park instantly, especially if you're in a tidal zone prone to storm surges from past hurricanes.

There are risks like this everywhere though - tornadoes happen across the midwest and earthquakes on the west coast.  I have heard stories where FEMA has replaced tenant mobile homes, but not sure if that was a once off or a new precedent.  I wouldn't count on it as part of your strategy, just a consideration.

I also assume you know that Florida is a very tenant friendly state.  Evicting in general there is costly and difficult, and many out of state investors will not go there because of this.  Raising rents also opens you up to complications in a Park setting, this deal may not be affected.  Just a word of caution.  Good luck.

Erik Anderson · Answer

yes I was confused by your original post. I am amazed the zoning allows for this. My only complaint is concern would be evictions become a lot harder, but you will not have turn over which is a huge upside. If the numbers work and you feel you can improve them I would buy it

Will G. · Answer

Jeffrey, I appreciate your opinion and can really see how not having any control over the neighborhood can be a real downside. Also occured to me that a hurricane could effectively remove the income stream, plus being left with a hugh mess to clean up!

Jeffrey H. · Answer

@Erik Andersonif you read the original post you would see this deal does not include the mobile homes - those are owned by the tenants and as a result repairs covered by them.  Only the lot rent is collected by the land owner.

Most agree repairing mobile homes is a losing strategy, but owning a Park where tenants own their homes is a proven model with great returns, much more than single family homes.

Jeffrey H. · Answer

Those expenses seem really low.  What about trimming trees, repairing utility lines, repairing driveways, etc?  A typical Park has 30-40% expense ratio and this is 7.4%.  No way.  Your valuation needs to consider how you would operate this "Park" not how the Seller squeezes the expenses.

350 lot rent x 20 lots x 65 (35% expense ratio at 10% cap) = 455K.  That's a more reasonable estimate in my opinion.  And considering you cannot control pride of ownership in totality since you're in a neighborhood reduced additional value IMHO (e.g. you cannot evict the neighbor with two cars on cinderblocks, three sex offenders living there, and 8 pit bulls tied up to the oak tree).