22 unit Mobile Home Park for 250K-Is this a good deal, advice?

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22 unit Mobile Home Park for 250K-Is this a good deal, advice?

Chris Ashley
Investor · Plattsburgh, NY · Member since 2015 · 6 posts · 2 votes

Hi, 

Recently my offer was accepted on a 22 unit MHP . It's taken a long time. Park owner filed bankruptcy, he's been out of picture and i've been negotiating directly with bank. When owner left town he didn't leave any financial/tax records so I've had to do some leg work/investigating to ascertain financials. I've done this by talking with current property mgt. Co. and knocking on doors of MHP with my realtor? Current PM of 10 yrs has been very helpful as he'd like to stay on for new owner (me) and i believe he's been honest with current scenario and showed me rent roll collecting for bank. My real estate broker has been very helpful as well, he owns several parks of his own and is well respected in community-he came highly recommended for MHP investing. He says this is a steal. However, i was hoping to get some additional perspective as it can't hurt, I don't want to miss anything.

here's offer bank accepted:

250K purchase w/ 20% down. I have a good financial profile and excellent credit. I haven't discussed additional terms with bank (interest rate, term, fees, etc.)

1. I don't want to get a bad deal on the back end of this deal with financing. Any watch outs, pitfalls and general guidelines when negotiating with bank for MHP loan? Acceptable terms, rates, interest rates, etc-any advice? As i don't have previous years tax returns for park, it limits my options and that's why i'm talking with bank that owns current mortgage as they are willing to be flexible and motivated by current owners bankruptcy. 

About the park:

22 units total.

15 rented and paying at $275 mo. lot rent. All long term tenants. (15X$275=$4,125 mo.)

1 vacant pad (needs trailer)

2 delinquent tenants

PM says one needs to be evicted and other always pays when he gets taxes back for last 9 yrs but I'm counting that as a vacancy

1 lot that has newer century 21 trailer on it for sale that's not paying lot rent

How does this work, how do i get this company to pay lot rent?

3 lots with vacant trailers that come with sale (2 of which need serious rehab)

with rehab, PM says i should get $600 a mo. per owned trailer

Would you keep ownership of trailers or sell trailers and only collect lot rent?

Considering purchase price of $250 w/ 20% down-assuming 15yr at 5% loan-Is this a good deal at where MHP park sits today with vacancy's?

Expenses paid by landlord (bookkeeping, taxes, PM fee, snow/lawn, utilities, maint., insurance, water/sewer)=$17,355 annually. numbers provided by PM. Public water. Septic systems. tenants pay own trash and water. Am i missing expenses or should i add in $ for potential additional costs, what are they?

of note, I have an old appraisal from 11/2013 of $375 but this is when park was fully rented. i've been told vacancy increased over last 18months due to owner leaving.

The good, the bad and the ugly? What should i be looking out for? What am i missing? Thank you all in advance for your considerations and time.

Best regards, 

Chris-

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Rob Chamberlain
Investor · Madison, WI · Member since 2013 · 16 posts · 5 votes
10y

I have owned a park for almost a year and here are a few things I have learned. I bought a park for a great deal, but it's in rough shape. Thankfully it cash flows despite these challenges.

1. It can be expensive to trash a trailer if it's no longer repairable. (1-5k). The dumping fees can get expensive.

2. When evicting someone ensure that you know both the owner and occupant. I stayed an eviction and learned half way through that he didn't own it. Just amended the eviction to include both people.

3. Depending on the state certain fines that are accessed to the home owners will be passed to the park owner if unpaid. 

I went and met everyone in this small town to get their take on the park (e.g. Police chief, town administrator, local mobile home store sales man)

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  • Kevin Schulte
    MHP Investor · Green Valley, AZ · Member since 2013 · 85 posts · 26 votes
    10y

    im at work right now so cant crunch numbers but an immediate red flag is a septic system. Have you had it looked at? Details on that? Those things are NOT cheap to fix and you could find out it isnt even meant to be used for that many spaces

    1Reply
  • NaDean Bowles
    Investor · Little Rock, AR · Member since 2016 · 152 posts · 40 votes
    10y

    A client of mine owns a park a little smaller than this and they say the gold is in buying super cheap trailers, fixing them up, and then renting them out.  They make a profit on each typically within the first year.  They have a maintenance man who lives there for free in exchange for some work/some cash.  He fixes up all of the old trailers and also whatever little things come up with the tenants.  

    Be sure to check your city/county codes.  Some places are 'fading out' mobile home parks and will not allow a new mobile home in a vacant spot.  

    1Reply
  • NaDean Bowles
    Investor · Little Rock, AR · Member since 2016 · 152 posts · 40 votes
    10y

    deleted duplicate post

    0Reply
  • Jeffrey H.
    Houston, TX · Member since 2015 · 512 posts · 338 votes
    10y

    Without tax returns or operating statements I don't see how this will get financed unless you have access to private money.

    This is a cash deal, and if it's on septic will have about a 50% expense ratio with proper management (I never use the Sellers expenses as a measure).  250k is very high for this property unless you're in a metro commanding 6-8 cap for MHP's.

    0Reply
  • Rob Chamberlain
    Investor · Madison, WI · Member since 2013 · 16 posts · 5 votes
    10y

    I have owned a park for almost a year and here are a few things I have learned. I bought a park for a great deal, but it's in rough shape. Thankfully it cash flows despite these challenges.

    1. It can be expensive to trash a trailer if it's no longer repairable. (1-5k). The dumping fees can get expensive.

    2. When evicting someone ensure that you know both the owner and occupant. I stayed an eviction and learned half way through that he didn't own it. Just amended the eviction to include both people.

    3. Depending on the state certain fines that are accessed to the home owners will be passed to the park owner if unpaid. 

    I went and met everyone in this small town to get their take on the park (e.g. Police chief, town administrator, local mobile home store sales man)

    3Reply
  • Chris Ashley
    OP
    Investor · Plattsburgh, NY · Member since 2015 · 6 posts · 2 votes
    10y
    Originally posted by @Jeffrey H.:

    Without tax returns or operating statements I don't see how this will get financed unless you have access to private money.

    This is a cash deal, and if it's on septic will have about a 50% expense ratio with proper management (I never use the Sellers expenses as a measure).  250k is very high for this property unless you're in a metro commanding 6-8 cap for MHP's.

    Hi Jeffrey H, thanks for the post.

    I've negotiated this deal directly with bank willing to finance loan. Bank is familiar with property having held the paper on Park and close business relationship with previous owner for 15yrs. Further, I have good credit, assets and could budget to pay for park out of personal W2 income with renting no untis. there a small local bank and happy to give me some money.

    Could you elaborate on your reasoning to why this would be a bad deal? Walk me through your calculations? I'd be very grateful as this is my first MHP and I'm learning. I've purchased other Multi unit properties but MHP seem to be a new animal.

    thanks,

    Chris-

    0Reply
  • Chris Ashley
    OP
    Investor · Plattsburgh, NY · Member since 2015 · 6 posts · 2 votes
    10y
    Originally posted by @Kevin Schulte:

    im at work right now so cant crunch numbers but an immediate red flag is a septic system. Have you had it looked at? Details on that? Those things are NOT cheap to fix and you could find out it isnt even meant to be used for that many spaces

    Good insight Kevin, thank you. After reading your post I contacted a local septic company. They said they'd do an inspection for 100 dollars for first hour and 65 after that. Seems reasonable price to pay for peace of mind.

    thanks again,

    Chris-

    1Reply
  • Chris Ashley
    OP
    Investor · Plattsburgh, NY · Member since 2015 · 6 posts · 2 votes
    10y
    Originally posted by @NaDean Bowles:

    A client of mine owns a park a little smaller than this and they say the gold is in buying super cheap trailers, fixing them up, and then renting them out.  They make a profit on each typically within the first year.  They have a maintenance man who lives there for free in exchange for some work/some cash.  He fixes up all of the old trailers and also whatever little things come up with the tenants.  

    Be sure to check your city/county codes.  Some places are 'fading out' mobile home parks and will not allow a new mobile home in a vacant spot.  

    NaDean, I called town supervisor after reading your post. He said park is grandfathered in and I'd be fine bringing in any new trailers-just need to do quick building permit and pay $75 fee, no board or member approval needed. 1996 and older trailers would need to be HUD certified.

    3 of current vacancy's are older trailers that come with deal. they need some rehad but I plan on renting them out to make additional money.

    Park comes with a maintenance man who's been with the Park for 10 years. He does rent collections, snow/lawn and light maintenance.

    thanks for your input.

    Chris-

    0Reply
  • Chris Ashley
    OP
    Investor · Plattsburgh, NY · Member since 2015 · 6 posts · 2 votes
    10y
    Originally posted by @Rob Chamberlain:

    I have owned a park for almost a year and here are a few things I have learned. I bought a park for a great deal, but it's in rough shape. Thankfully it cash flows despite these challenges.

    1. It can be expensive to trash a trailer if it's no longer repairable. (1-5k). The dumping fees can get expensive.

    2. When evicting someone ensure that you know both the owner and occupant. I stayed an eviction and learned half way through that he didn't own it. Just amended the eviction to include both people.

    3. Depending on the state certain fines that are accessed to the home owners will be passed to the park owner if unpaid. 

    I went and met everyone in this small town to get their take on the park (e.g. Police chief, town administrator, local mobile home store sales man)

    Hi Rob, thanks for the info.

    I wasn't thinking about potential for costly trash fees-thanks

    Good tip on eviction process. What happens if the occupant your evicting doesn't own trailer, what happens to trailer? Does the bank or person who owns trailer pay for lot rent as they try to find someone new to buy there trailer, move it or sell?

    I called town supervisor and got the inside story. He said it has had a few issues, normal stuff that was resolved quickly and other than that it was good park.

    Thanks,

    Chris-

    0Reply
  • NaDean Bowles
    Investor · Little Rock, AR · Member since 2016 · 152 posts · 40 votes
    10y

    I'm glad it's working out so far!

    0Reply
  • Matt Skog
    Minneapolis, MN · Member since 2016 · 60 posts · 18 votes
    10y

    I'm interested in a park near my work that is grandfathered in, which has a combination of a 10-unit motel-like efficiency, and around 100 lots with city water and sewer. I'm interested in turning it over into a high-end lakefront community, as it's situated on the lake as it is. Am I being too short-sighted in offering $1 million? Over half of the units are owner-financing. Plus lot rents are $475, and only 5% vacancy rate. The 10-unit rents are $500. If I were to develop the lake lots, they would go for $200,000 apiece, and could make 10-15 lots. Would appreciate your thoughts.

    0Reply
  • Rachel H.
    San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes
    10y

    Numbers only show one side of the picture. Unfortunately, most times this is the only side many investors see. You need to seek out the intangibles and see what issues have come up with the park (i.e. infrastructure, code violations, tenants' perception, etc). 

    Talking to tenants is one step in a good direction. I'd take it further and try to get invoices of past work done on the park. Talk to the contractors they used. They will tell you the issues that have come up in the past. 

    These are all intangibles which can help to make your decision. Good luck! 

    0Reply
  • Jeffrey H.
    Houston, TX · Member since 2015 · 512 posts · 338 votes
    10y

    @Matt Skog if this has 95 occupied pads and a lot rent of $475 per month then this park is worth closer to 2.75 or 3.0 Million on the surface or more as it sits.  95 Pads * 475 lot rent * 12 months * 0.6 (40% expense ratio) * 10 capitalization rate = ~ 3.25 MM

    If you can pick it up for 1 Million then you why not just milk the thing as it sits for the perpetual income, why the redevelopment headache for a one time payoff?  If anything try to expand on the current model and get rid of the motel.  Look into adding additional lots, and confirm what you can do with the city before you close on the thing.

    0Reply
  • Matt Skog
    Minneapolis, MN · Member since 2016 · 60 posts · 18 votes
    10y

    Thanks, Jeffrey. The park owner is dealing with some legal issues related to some of the units that he tried to argue to the court, that he wasn't really selling some units, but had merely recorded them on the wrong documents. It's one of the reasons for this lowball offer in the first place. One of my co-workers paid a few years past what he was legally bound to on the Contract for Deed. The park owner has had some others go against his favor like that as well.

    0Reply
  • Garrett White
    Investor · Mount Ulla, NC · Member since 2013 · 35 posts · 15 votes
    10y
    Regarding your question about renting to tenants vs selling the trailers, there's a couple things to consider. Renting the trailers will obviously bring in more gross income. On the flip side though, renting the trailers also means a significantly higher expense ratio from additional maintenance and will require more of your attention (or at least the attention of your PM). From my perspective, I would rather set the tenants up with a lease option and include in the contract that tenants are responsible for maintenance pertaining to the mobile home. It seems like the pride of ownership would produce a lot less headaches. Also, on the back of end, when a tenant owns the home, it makes it easier for you to increase lot rents because of the unfeasible costs of relocating. Increase the lot rent -> increase the value of the property, and the lot rent is what typically makes up the largest portion of what your property is worth.
    0Reply
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