MHP 24 pad 1 house potential deal.

12 Replies

I found the mobile home park for sale, I met with the owner and discussed some numbers.

Asking price $350,000

24 lots and 1 house included.

city water/sewer paid by tenants

house rented at $700/mo

1 mobile home owned by park rented at $600/mo

1 vacant lot no house 1 vacant trailer owner is selling not paying "maybe I'll buy it to rent or sell owner financing?".

21 rented lots at $225/mo

5 have dogs at $50/mo

giving us $6275/mo or $75,300/mo Gross

he gave me his expenses at $8,700 annually so 725/mo

so that $5,550/mo or $66,600 annually net minus financing

He removes the snow himself but I got a quote for $200 per snowfall. I do live close so I guess I could do it but I don't want to so I'm trying to budget it in.

so even with the 2 vacant it seems to be kicking off a good ROI? What do you guys think?

Thanks Dustin

@Dustin DeSmith , $8700 of annual expenses is an awful understatement. That is only 10% of the park income. Usually good parks run at 30-40%.

I looked up average property tax rate in Wisconsin and it's 1.76%. So you'll be looking at $6000 + just in property taxes based on the purchase price.

I would triple the expenses that he is giving you and go from there.

With that said: 225x21x12x0.7x10 (at 10 cap) = $396900

So 350k might still be a good price.

@Dmitri K. He said taxes are $7200 and his ins is $1500/ yr, so yeah I guess I was wondering how much to budget for cap X. only 2 short roads through the park off city roads, and they are as good as the city roads, "doesn't say much lol" We walked the park in under 5 minutes, pointing out the trailers and telling about the tenants. The park isn't the prettiest but it fits the small town not nicer not worse just a small working class town, so it has no frills. I know the company where several of the tenants work, and my W2 job even supplies that company "I commute to MN from WI daily" but that's a story for another day. So would you go with a 30% Any further thoughts?

Id figure atleast 10% gross rent cap x. This is a new park to you. Dont forget book keeping, manager, repairs. In the multi family game you can figure 40-50% gross rent on expenses.  

This is a little different animal than most of us are used to looking at.  The first thing I would do is look at the crime and police responses to the park.  I am not sure what your local police department can provide you but some of these have a pretty bad rap in areas because of the tenants who reside.  This could cause more turnover at your location, fines from the city, and a lot of management time you may not be expecting.  Remember, this isn't like renting a house, there is a larger cost to moving there trailers and getting out of the park.  I suspect many of the trailers will be there for a while.

I would also want to see a listing of the tenants and would start conducting background checks on them to let you know what you are dealing with.  MN has a free court records check to tip you off to DWIs, felons, etc who may make ownership a hassle.

I can't give you any numbers backed by any research but I also suspect the expenses provided to be very low.  You already know that the numbers he gave you make no sense so the first thing I would do is question him on this, let him know that he said X but that you know the expense for insurance and taxes along exceed this.  I would try to push for some real numbers such a tax return schedule showing reported income before proceeding any further. If he can't give you real information I wouldn't trust anything that he is telling you.  

You didn't mention financing but unless he is willing to seller finance you will likely have to come up with a minimum of 20% down or $75,000 to get a loan on this property.  At the same time I would suspect interest rates to be higher than we are paying for real estate investments as there may not be a secondary market available for this product.

Lastly - I have seen people do very well with these investments however they ended up owning many of the houses and owned this for a very long time.  This wont be a very liquid investment so I would consider your exit strategy as a part of your purchase decision.

@Dustin DeSmith , (disclosure) i don't own any MHP, but on the surface this looks like a viable investment.

It's a smaller park, so it would not be as liquid, as many investors are looking for larger parks.

You might have a hard time finding a bank to finance a deal of such size. So i would make sure you can secure financing either via a local bank or seller finance.

I would definitely check on the area statistics and make sure there is a demand for the park by placing a test ad on craigslist. I've head a lot of times when all these renters are nothing but bodies that were placed on the lease just to sell the park.

Do a good diligence before you buy. Check bank statements to make sure that collections are solid, check leases to make sure that not all 21 of your tenants just signed a lease 2 weeks ago. Check that there are no major issues with the infrastructure or environment, as it would be hard to address those from a cash flow of a park of this size.

There are quite a few good things about the  park - city water and sewer! Good occupancy and just 1 park owned home. And as i mentioned - the price looks reasonable.

Good luck.

Thank you for all of the information. I think I am going to pass on this one. I don't want to tie up the time or resources at the moment.

@Michael Henry Yes he is. He wants 75K down and I think he said 7-8% then a balloon payment after a number of years.

@Dustin DeSmith very interesting. Can you inbox me with your contact information? I might be interested in partnering up. 

Originally posted by @Dmitri K. :

@Dustin DeSmith , $8700 of annual expenses is an awful understatement. That is only 10% of the park income. Usually good parks run at 30-40%.

I looked up average property tax rate in Wisconsin and it's 1.76%. So you'll be looking at $6000 + just in property taxes based on the purchase price.

I would triple the expenses that he is giving you and go from there.

With that said: 225x21x12x0.7x10 (at 10 cap) = $396900

So 350k might still be a good price.

21 of the lots are tenant owned homes. No maintenance needed there so that will lower expenses dramatically as compared to those same homes being parked owned. I'm not saying the seller's numbers are accurate but I doubt very much they would be anywhere near the 30-40% mark. 

I think on the surface the deal def has merit considering its in a decent metro and would like to know what the market lot rents are. I personally would look into something like this further as without knowing all the variables it could have potential as a buy. 

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