MHP deal analysis

[Kyle Bethune]

I am looking for some input on this deal. I am seeking my first MHP. Any input, or advice is greatly appreciated. This is just what I have been able to get out of the seller thus far. ( Central Florida) Asking price-$365,000 They are offering 50% owner finance (not sure of rate or terms) 6 MHP units occupied 1 larger unit the owner occupies (they are not staying) 1 vacant mh 1 mh needing rehab Car lot that is currently rented 4.5ac land 6 parcels of land 3 commercial 3 non 2015 total gross rents $55,333 2015 total expenses $21,621 ( I was told a good portion was used to rehab a MH) 3 septic systems Tents pay all utilities Property is zoned for 20 total MH's I look forward to the comments! Thanks for reading.

[Jeffrey H.]

This honestly sounds like a nightmare - this Park is worth somewhere closer to 100K. 6.5 units (including the car) x $300 per month lots rent x 50 (12 CAP with 50% expense ratio) is under 100K. You need to value this Park based on the income and how you would operate it...

Based on the financials you have 100% Park Owned Homes so you will be doing all the repairs, which adds 15-20% to your expense ratio.  With small Parks under 20-30 units you already have a historically higher expense ratio at around 40-50%, and then add septic that's another 5% expenses compared to city sewer.  This means this Park under proper management has at least a 60% expense ratio, which is not good.

The problem with the financials provided to you is that they reflect how the Seller operates the Park, not how you would, and you need a detailed copy of tax returns and operating statements to proev how poorly it has been managed up to this point.  Seller has been repairing homes with barbed wire and bubblegum for the last 10 years and is really happy you will be putting the 10K in rehab they need after you take over.  Who pumps the septics tanks, mows the grass, trims trees, collects rent, repairs the homes, pays insurance, etc?

And if you plan to infill the empty 14 pads then look to spend about 20K per home all in to get them put in place, fully rehabbed, etc.  Not a cheap proposition.

With any turnaround Park you'll probably end up evicting some of the tenants because they would be breaking your Park rules and not pass a background check.  This does not even consider that Florida has some of the toughest MHP restrictions in the nation, but fortunately do not apply until 50% or more of the tenants own the homes in the Park.

Happy to answer more questions, but you shouldn't be worried about this selling unless it's a prime location for re-development for other usage.

Owning an MHP with Park Owned Homes is slumlording and an very high expense business.  You want the tenants to own the homes, have pride of ownership, and only collect lot rent.  That's the model that helps everyone win.