I am looking at purchasing a mobile home park from a friends father who is older. . It is run down due to his age. This is the situation there are 40 lots, he owns two of the trailers only 10 lots leased he is getting $150 per lot. There is a moratorium on mobile home lots in the area but I have already verified with planning and zoning his is grandfathered in. A 20 mile radius the range is 185-225 per lot water garbage included. Rent for park owned trailers very depending on condition of community and trailer 675-$850 per month including lot fee. Nicer communities at about avg 80% occupancy really nice are full. Moratorium is now 2 mobile homes per one acre.
It needs road repair about $7-9,000.00 (depending on fill/gravel, speed bumps), new entrance , landscaping, school bus/ mail box covered area $8-9,000.00, upgrade electric boxes and poles $12,000.00, add city water $3,000.00, new pumps for sewage plant $3,000.00. About $40,000.00 upgrades and redeveloping costs. I am a contractor and can do work.
Projected Yearly costs
property taxes once bought $6,000.00
Maintainace grass landscape. $6,000.00
Based on this general information what would the mobile home experts say a fair purchase valuation be and also I would like to purchase around 10-15 mobile homes to set a general standard. Any advise on this also.
Thanks for your help,
@Robert Fletcher Be sure to check the plumbing, pipes and overall water and sewage structure. You may need to figure in numbers for this as well. Older parks tend to need major upgrades in this area. Good luck!
Not an expert, but assuming you have 2 Park Owned Homes (POH) and 10 Park Owned Homes (TOH) and picking the low range on rents you'd end up somewhere between $160K and $180K using some of the standard rules of thumb. This ignores upgrade/redevelopment costs you are considering. By the time you do a return on cash analysis you may be unwilling to offer that much.
I suspect the seller will think you are WAY TOO LOW in either case. So this is where you really want to start brainstorming for win-win ideas. If you haven't researched the "Master Lease Option" (lease to own) you may want to do that now. There are many reasons why this may be a good solution for both of you.
For you, this allows you to keep your cash to invest into the park and start increasing NOI. The park's valuation will increase about $10K for each $1K of NOI increase and you get to keep that when you close.
For the seller, this allows him to realize a better sale price for the property than he would get at current valuations and he gets rid of the headache immediately.
The theory is that you would re-finance the park in a few years and would be able to pay the seller a higher price than valuation shows and at closing you would own a park that is worth a lot more than what you paid for. You may even be able to get your cash out of the deal.
If you decide to go in this direction, you may want to easy into it. First you have to let the Seller realize the low NOI will drive a low park valuation. At some point you'll have to convince the seller that he is taking little to no risk because you are trustworthy, you are capable, you have a plan, etc. In the event you fail to make payments, then the seller ends up with a slightly improved property. Thus, in theory this arrangement presents very little risk for the seller, provided the contract is drafted properly.
So i would be correct in saying there is no value in future projection of remaining lots? He is under the assumption there is present value based on the potential lot occupancy and if someone were to bring in there own homes to rent. If brought up to standards the community would be close to occupancy based on moratorium now and surrounding lots. Unique situation based on knowing him for a long time and friends dad. Cannot play hard and would like to be be fair with him from my end as possible (it is business in the end and I also realize all profit is made upfront on purchase in most deals), so I need to negotiate based on facts, stats,and hard numbers. So what is a general rule of thumb on a redevelopment circumstance with original posting info above to get to a 50-70% occupancy within the first 12,18,24 months and is that realistic? How difficult is it to find10-15 units at a reasonable amount to justify investment of purchasing units. What formulas would a mobile home park appraiser use and what would say a bank or lender use also to access the risk?
Something like this is tricky to value because there wont be a ton of interest in it.... The buyer pool is limited and you need to factor that into the equation.
i would def get clarification on the zoning. You state they want to do 2 per acre . I would verify that you have the ability to replace homes or fill the vacant spaces.
In theory, you should not pay for opportunity like vacant spaces. That being said, sometimes, you have to pay to play ( meaning giving some value to get the deal done....) so keep that it mind.
Always factor in mgmt fee and on site person fee into your expenses even if you run it. If you go to sell , that will be projected in regardless....
Biggest deal breaker is a sewage plant on a park this size with this few homes. It would effect the marketability greatly . On that fact alone I would walk the deal.
Thanks for insight
@Robert Fletcher a bank's appraiser most likely would use a 8 to 10% market cap In their valuation. Because the seller understands the potential he will have difficulty accepting such valuation. This is why you need to find a win-win.
The sewer treatment plant will scare away most other investors, but if you have experience with this, you are comfortable with your understanfing on county requirements, etc. you may be the best buyer the seller will see in a long time.
What kind of sewer treatment plant is it? If it is a package plant 40 lots at $150 to $200 a month will never support the long term replacement cost cap ex savings you will need. How old is the treatment plant?
I spoke to county and they did an inspection sd everything is up to code and good from inspection. it is tested every three months. Bi level ground cement treatment system.
I appreciate. Give me good fundamental benchmarks to evaluate a good opportunity. Seems (mobile homes)to be a decent return on investment
With two cement tanks you could have a potential to have all different types of treatment systems: Aerated septic system, Sand filter, Extended aeration activated sludge (this is typically what gets called a package plant). Each treatment type has different operating cost, and cap ex cost . Sand filter, and aerated septic tank may pencil on a 40 space park $150 to $200 lot rent park while a extended aeration system will not. Find out some more information. See if they have a operating permit this will tell you what type of system they have and the operating conditions.