First Buy and hold small mobile park evaluation help

8 Replies

This is my first post!

I am looking at a mobile home park for sale. It has 8 lots. 7 of 8 mobiles are being sold with the property and one of the homes is tenant owned. There is not much maintenance associated with the property(land) that I can see. Each unit has its own water/sewer and electrical service. Water and Sewerage are public utilities(big plus!) The gross income at full occupancy is $3500/mo, rents are mailed to a PO box. The one lot is rented mont to month for $200. One unit is newly vacant and needs small repairs. All units are 30+ years old. Majority of tenants have been there over 10 years and one for over 25 years. Parking lot is in good shape and is limestone aggregate. Yard work cost $40/month Property tax is about $700/year on the land. 

The main reason I am interested in a mobile home park are the reduced maintenance responsibility if units are tenant owned (does not apply here). I would like to rent to own the trailers to the current tenants, it could be a win win for both of us, they a cheaper rent and I get less maintenance.  I am not sure how feasible this is. 

What would be a fair price for this park? Asking price is 275k negotiable. That seems like a high price to me. What are your thoughts?

Thanks in advance for any feedback.

@Bobby Larsen Welcome to BP. 

At first glance the asking price seems extremely high. 

The most common way I've seen to value parks with POH is to capitalize the park and homes separately then add them together at the end. That way you can separate rental income from lot rent and don't overvalue the homes. 

 A best case scenario valuation, using a 30% expense ratio and 10 Cap, values the Park at $134,400

Pushing the expenses up to 40% (it may be higher) and raising the Cap Rate to 13, so you reimburse yourself for the risk and work of running 7 rental units, values the park at $88,600

Making another bold assumption about the homes and saying they are worth $10k each, for a total of $70k. 

Adding the two means the deal is worth, at best, $204K but most likely something closer to $158K, IF there isn't any deferred maintenance on the park or the homes.

What is market lot rent in the area? Can you add more lots? Do the current residents have the credit and desire to buy their homes through rent credit?

The units are 30+ years old, but have they been rehabbed in the meantime?

@Bobby Larsen Try to get copies of invoices of work done to the park over the past few years. See if you can contact the contractors who did the work. They may be able to give you more insight on the park's overall condition. Good luck! 

Thanks for the input. I have reached out to get more info from the seller. He also pays $1700/yr for $2MM liability insurance on the property and $700/yr/unit for home insurance. 

The seller claims one resident as asked more than once about rent to own. If we can get the price down I will reach out the residents since there are only 7 rentals ask see if this interest them. 

I am also trying to think of a proposal where the current seller keeps the homes and I buy the land only. He could then pay me lot rent and rent the units to the tenants. Have you ever heard of this or would it get too complicated and risky of 7 out of 8 units are owned by one person?

@Bobby Larsen You can certainly try to buy just the park, but that leaves a lot of the power in owners hand since; if he wants he could empty your park if he wanted. Better to have a solid plan to sell the homes. Try running some test ads on Craigslist to see what the market is for owning MH. That could also help your case when it comes to valuing the homes themselves and negotiating with the seller.

I agree he could leave the park however that would be very costly and not worth it for him since most of the homes are so old. If I buy the land and he owns the trailers he could just pay me 200/mo/lot and he could sublet to whatever tenants he wants. If we structure the terms such that he still owes $200/mo whether he has a Tennant or not I don’t see how this would be much different than if they were all separate.

I would prefer to buy the homes however they generate a good bit of rent so he wants to sell them for more than they are worth. He would like to get a 100k for 7 trailers that average over 30 years old. This seems to be on the high side since they are all not updated.

So the town the park is in no longer allows mobile home parks, the word on the street is that if a spot goes vacant for more than 6 months they won’t allow another trailer to be set. Has anyone else experienced this?

@Bobby Larsen I have heard of towns having ordinances like the you described, but don't have any personal experience. You should get the answer before you buy the park. If it is true, I'd contact your states Manufactured Home Association to see if you can challenge its legality.

Thanks Bill. The seller also said he is no longer interested in selling the land only. He wants to sell it all but won’t go lower than 250k. The gross monthly income is $4000 that includes the 7 park owned units and the one lot rent for 200.

I’m thinking it’s overpriced

@Bill F

I am new to this whole real estate thing and am learning. Would you mind breaking down your calculations and how you got them?

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