Mobile Home Park with 30 Units

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Mobile Home Park with 30 Units

J Berk
Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
Hey all! I've been reading the forums and enjoying and learning from everyones input for a few years now. I'm in negotiations with a seller and would love some feedback from you experienced guys. Here are the details. -its a 5 acre seasonal park on a beautiful large lake near Cooperstown NY with 30 cottages all owned by the tenants. -it only operates from may 1 - oct 1 (5 months a year) the water gets turned on and off on these dates. - each cottage has there own septic which they are responsible for. The park supplies water from a well. -tenants currently pay 2000 per year. Most tenants have owned cottages for 10+ years and rent has been very reliable with 100% occupancy for the past 20+ years. -the park includes 60 ft of lake frontage where tenants are allowed to keep there boats and put there docks. The current owners allow the use of the lake frontage but do not have anything to do with putting docks in etc. This is all done by the tenants. -last 3 years operating expenses were just about $10,100 a year. Pretty much all that needs to be done is mow the large 2 acre lawn and maintain the water system. - so the numbers look like this $60,000 gross income, $10,000 operating expenses = $50,000 net operating income. So i'd love some input. What is this park worth? What should i offer? Owner financing is definitely an option. What is a fair term and rate for owner financing? Looking forward to your input guys! Best, Jon
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Account Closed
Johnson City, TN · Member since 2014 · 586 posts · 705 votes
9y

You aren't going to get money a great deal cheaper than this on an investment property. Would they take a lot less for a all cash deal? I have carefully read all of your posts and what I am taking away is that this is a very emotional thing for you and you are hoping to hang on to the past and create a future here also. I am afraid emotions are clouding your business decision here. I see a lot of things that can go very bad with this deal. You say that you plan on holding this property forever, but life has a funny way of changing things. Always have an exit strategy.

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  • Matt Boettinger
    MHP investor from Johns Creek, GA · Member since 2014 · 123 posts · 31 votes
    9y

    Who will manage it?  you don't mention any management expense.   You also didn't mention Property Taxes and insurance as expenses.  Did they give you a P&L with the expenses?

    1Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y
    Hey Matt, Thanks for asking! There is a manager there already who has been there for many years. He mows the lawn and does odd jobs around the property. Yes, i have viewed the P&L. The insurance and taxes, as well as the manager are all included in the 10,100 for yearly expenses. Also, this may be interesting to know. My family has owned one of the cottages for about 40 years. We know the sellers very well and i played with their grand kids as a child there. Hoping this gives an edge!
    0Reply
  • Mark Gallagher
    Flipper/Rehabber · Allentown, PA · Member since 2011 · 1k+ posts · 701 votes
    9y

    @J Berk

    $500,000 

    But first.. You say there is a 2 acre field. Does that mean 30 cottages are on 3 acres? 10 per acre? Meaning 10 septic systems per acre? Sounds like an environmental nightmare...?? Or do a couple cottages share one system? Where is the well in relation to all of this? Do you have an environmental docs? Why are they selling? The tricky thing with owner financing will be how confident you feel in being able to refinance them out of their loan as I'm sure they're not going to want to give you lengthy terms, especially if they need the funds for retirement. 

    1Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y
    Mark Gallagher Thanks for your questions and interest Mark! I see you're not too far away in Penn. Concerning the septics, some cottages share septic tanks and some are on their own. I know some of the cottages have been there for 50+ years and may have 50 gallon drums for septic tanks. All of the tenants have always been responsible for their own systems. I do not have an environmental report. How might i obtain one? The cottages are fairly close to one another. About 15 feet in some cases. What i've noticed: The cottages are used sparingly. This is a sleepy little park that people just use on the weekend and holidays for a few months a year. A vacation home for people with some disposable income. What would be a fair interest rate and term. The sellers are willing to do 5, 10 or 15 years at 6% with no prepayment penalty. They are asking 619k with 200k down. The water supply: The water supply is across the road about a football field from the closest cottage. It's actually a spring that fills up a cistern. Looking forward to your insights all!
    0Reply
  • Mark Gallagher
    Flipper/Rehabber · Allentown, PA · Member since 2011 · 1k+ posts · 701 votes
    9y

    @J Berk

    I'm no expert, but if people are using 50 gallon drums for septic tanks, that sounds like an environmental nightmare to me. I doubt what's going on is legal. Where are they dumping the 50 gallon drums? I know you say that it's their responsibility but it would be your land that they're potentially dumping sewage on. 

    I'd say that would be my biggest concern with the entire thing. 

    1Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y
    Mark Gallagher Mark, From my understanding. In the old days these were buried several feet underground instead of septic tanks. There is no dumping, it seems the waste water just filters through these old homemade tanks. For these to be discovered things would have to be dug up. I will definitely look into this and report back. What do you think of the sellers financing offer of 6% at 5, 10 or 15 years with no prepayment penalty. 619 with 200k down. Best, Jonathan
    0Reply
  • Mark Gallagher
    Flipper/Rehabber · Allentown, PA · Member since 2011 · 1k+ posts · 701 votes
    9y

    @J Berk

    I hate to be such a pessimist (I'm usually an optimist) but the whole septic thing would make me run away no matter what the seller is offering. You need to talk to the town/county and see if what's going on is legal, I'm guessing there's no way it is, no matter how remote it is. I wouldn't disclose where you're calling about, just give them the situation. 

    1Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y
    Mark Gallagher Will do Mark! I do know that 2 tenants replaced their septic about 5 years ago to code. It cost them 4500. Any thoughts on the sellers term and interest offer?
    0Reply
  • Mark Gallagher
    Flipper/Rehabber · Allentown, PA · Member since 2011 · 1k+ posts · 701 votes
    9y

    @J Berk

    I think you'll never be able to refinance out of it, if you don't clear up the environmental issues.

    I'm a little hung up on the environmental issues.. can you tell?!

    0Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y
    Will definitely look into this and update Mark!
    0Reply
  • Account Closed
    Rental Property Investor · Friendswood, TX · Member since 2010 · 663 posts · 508 votes
    9y

    Not sure what these cottages are ( mobile homes/structures) but the expenses would be grossly understated for whatever it is.... Tax , insurance, legal, accounting, advertising, phone mgmt, repairs, reserves, deferred maintenance , are a multitude of things to consider that will skyrocket the 10k.... 

    1Reply
  • Account Closed
    Johnson City, TN · Member since 2014 · 586 posts · 705 votes
    9y

    I would be concerned about the continued availability of potable water. Is there the possibility of connecting to utility water if the spring runs dry or becomes contaminated? I tend to look at this like a traditional mobile park deal in that I would be concerned about the ability of the houses to stay in good enough condition to continue to justify paying lot rent. Overall, what condition are the cabins in?

    1Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y

    @Account Closed

    Hi Jack!  Thanks for the interest.  The cottages are all owned by the tenants who are responsible for keeping them up.  They keep them in fairly good condition.  Most of the tenants are middle aged to older couples who use them as "summer retreats."  They pay the taxes on the cottages as well.  My elderly parents actually own one of these cottages (past 40 years), the elderly woman who owned the park recently died and the kids are looking to sell.  We know the family personally and I have been going back and forth with them via email.  Here's a run down of last years expenses:

    2016:

    o auto - $ 125

    o cleaning & maintenance - $ 540

    o insurance - $ 1499

    o repairs (tree work) - $ 1296

    o supplies - $ 338

    o taxes - $ 4,213

    o utilities - $ 276

    They are willing to offer a 15 year term at 6% is this fair?

    0Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y

    @Account Closed

    Hey Tim,

    My sister lives in Johnson City, was there just last week!  Thanks for the questions. As far as the water, there isn't a possibility of municipal hookup as the park is out in the sticks right next to a lake.  But there is a backup well up on a hill behind the cottages that the owners have used.  

    The cottages are in good condition and owned and maintained by the tenants.  The current owners only had the lawn mowed and turned on and off the water each year.  Everything else is up to the tenants.  The park has been owned by the same family for 100 years! 

    They are offering owner financing at 15 years 6%.  asking 619K with 200k down.  What do you think of this? Is 6% a fair rate?

    0Reply
  • Account Closed
    Rental Property Investor · Friendswood, TX · Member since 2010 · 663 posts · 508 votes
    9y

    @J Berk  When you take it over someone is going to have to run it.   276 on utilities?  Even with only a well pump, no lights , sounds like its pretty low.  Your expenses are going to higher. If you self manage, you still need to factor that in as a real cost.  Someone going to get compensated for overseeing the place?  What if you need to do big service on the private utilities  ? I can assure you its going to cost a lot more than what they say....  They might be doing work themselves. 

    1Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y

    @Account Closed

    I agree it sounds low!  Is it possible it's that low because the property is only operating 5 months a year. Yes, it would just be the well pump nothing else.  What do you think of their offered 15 year at 6% and their asking price of 619K w 200k down?

    0Reply
  • Mike Nelson
    Investor · Oak Park, IL · Member since 2014 · 307 posts · 150 votes
    9y

    Is there any possible upside with upgrading the units, or any value for redevelopment?  I recall the resort I went to as a kid in Tomahawk called Spittin' John's, a group of eight little summer-only cottages on Lake Tomahawk, Wisconsin.  Someone bought the land with all the little old cottages and built year-round homes there.  

    1Reply
  • Account Closed
    Johnson City, TN · Member since 2014 · 586 posts · 705 votes
    9y

    I think 6% is a good rate for owner finance as long as you are not overpaying. Given the numbers provided, you will cash flow 7k per year or 3.5% on your investment. You need to find out if this property is elegible for bank financing. If not, the overall value is greatly diminished.  What would be your exit strategy with this property? This deal has a lot of potential risk as well as reward. 

    0Reply
  • Account Closed
    Rental Property Investor · Friendswood, TX · Member since 2010 · 663 posts · 508 votes
    9y

    @J Berk Seller carry can be good. You can run the payment on that to figure out your cash flow but the problem here is that you don't have accurate expenses. Mobile home parks themselves typically run 30-40% expense ratios . Apartments 50% on average. In this case you don't have a full year of rent so typically fixed costs don't have as much space to be spread over. So lets just say in theory , when someone who has to pay for things goes to run it, its 30k of actual expense. The NOI is then 30k . I don't know what the market is to sell something like this (cottages that people own) but just call it a 10 cap. So say its worth 300k. Then i would say you are overpaying by double solely based on net income.

    People try to sell stuff on low expenses all the time but you can't believe what they present because in real life you will have to pay people to do things ( or things that break) and if you kid yourself it can really come back to bite you..... 

    3Reply
  • Brian C.
    Investor · Aptos, CA · Member since 2015 · 87 posts · 38 votes
    9y

    What Jack Baczek said..Im not liking the price..but I dont know the area either.

    0Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y

    @Mike Nelson

    Hey Mike!  Yes this is this type of place you described.  I spent summers here as a kid and played with the owner's grand kids growing up.  Learning to swim in the lake across the road and picking berries on the hill behind the camps.  We went to weddings, birthday parties etc over the years here.  So we are pretty close with the owner's family. I believe they have been very honest about the expenses.

    I think making these year round homes is a possibility.  Right now all of the  30 cottages are owned by individual families who up keep them themselves. One of these cottages is owned by my parents, that's how we got the offer to buy it before it hit the market. The cottages don't change hands often as $2000 + your share of the real estate taxes is a great deal to be next to the lake, but as they become available I was thinking it might be an idea to buy them one at a time and make them a weekly rental.  The park is close to the baseball hall of fame and weekly rentals by the lake go for 1500-2000 a week.  So this may be a great way to increase the park's income.  For me, this is a buy and hold.  I'd like to keep this, make improvements and retire in 20 years using the income.  I do not plan on buying another investment property, just maximizing and concentrating on this one.

    Would love to hear your input and ideas!

    0Reply
  • Mike Nelson
    Investor · Oak Park, IL · Member since 2014 · 307 posts · 150 votes
    9y

    These places have a lot of great family memories, with several generations of family!

    0Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y

    @Account Closed

    Thanks for the insight Tim.  I plan to buy and hold this property.  Planning to raise the rent to 2100 after the first year.  Would it be a smart move to stretch this out the full 15 years and cash-flow it or pay it off sooner to avoid paying the interest?

    0Reply
  • Account Closed
    Johnson City, TN · Member since 2014 · 586 posts · 705 votes
    9y

    You aren't going to get money a great deal cheaper than this on an investment property. Would they take a lot less for a all cash deal? I have carefully read all of your posts and what I am taking away is that this is a very emotional thing for you and you are hoping to hang on to the past and create a future here also. I am afraid emotions are clouding your business decision here. I see a lot of things that can go very bad with this deal. You say that you plan on holding this property forever, but life has a funny way of changing things. Always have an exit strategy.

    4Reply
  • J Berk
    OP
    Brooklyn, NY · Member since 2017 · 28 posts · 2 votes
    9y
    Tim Chapman Tim thanks for your insight! Im new at this! The buyers have agreed to take 550k with the 15 yr 6% 155 down. Ive done my best with the math and to me it looks like the place will cost 12k to run with a manager in place. Cash flow at about 8k a year with 60k and room to grow. Today i spent most of the day doing research on the septic situation. Will the park come under scrutiny when it changes hands with owner financing? Will the state suddenly appear and test everything or ask about the septic set up? This is something i am concerned about. I am definitely open to say no to the deal if it doesn't look good. What are the points you feel are most likely to go wrong? Considering the situation, what would the things be that i should really focus on for due diligence?
    0Reply
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