Help! Just got my 1st Mobile Home Park Under Contract!

Mobile Home Park Investing
8yFollow

Help! Just got my 1st Mobile Home Park Under Contract!

Karla Yudy
Investor · Raleigh, NC · Member since 2016 · 28 posts · 3 votes

Any experienced mobile home investors out there? 

I'm looking on some feedback about what steps to take when buying a mobile home park as I have no experience with mobile homes! This is a small park (only 6 homes) so I think it is manageable but I am kind of unsure about what steps to take next. 

I'm in the due diligence process now what things should I be looking to investigate over the next few weeks to make sure this is a solid investment?

A little about the park:

-Small park -only 6 homes on 4 lots of roughly .5 acres each. 

- sits on a residential street, so not a park in the traditional sense; other properties around it are rental/owner occupied mod homes or SFHs (average price of these homes are roughly $100-110K

-total rental roll is $3,500 on a $252,000 purchase price (this is what attracted to me to park in 1st place - extremely hard to buy this type of income stream at this price where I live)

-on well and septic (don't have much experience here, what should I be researching/verifying? 

Overall, I was really attracted to the deal because of the income the property produces but what other things in general should I be looking into/verifying?

0Reply
40 views

Most Popular Reply

Wilson Lee
Birmingham, AL · Member since 2014 · 178 posts · 75 votes
8y

Net operating income / sales price = cap rate

I just took your numbers,  If the 3,500 is not net operating income.  Then take out your operating expenses and do the math again.  The cap rate would be even smaller.

For a mobile home park,  cap rates that I looked at where 8% to 10%. 

As for the part about owning the trailers,  Get the year make and model and pull the value from the NADA listings.  You may be shocked (good or bad) to find the retail value of the mobile homes.

http://www.nadaguides.com/Manufactured-Homes

Renting mobile homes is not the same as renting mobile home lots. When renting the lots, Mobile home owners will stay put for years as they don't have the cash to move their trailer. But people renting mobile homes can move out when ever. So there is much more turn over cost. The cost to do any repairs in a mobile home cost about the same as a SFH. But, rahab in mobile homes do not increase sales price the same as in SFH.

The 6 homes on 4 lots is also something to look into.  Check with the zoning board to see if that is a violation.

2Reply
See this reply in the discussion

13 Replies

Jump to latestLatest
  • Donald S.
    Accountant · Saint Louis, MO · Member since 2017 · 409 posts · 362 votes
    8y
    I don't have any suggestions for you, but how others do. how did you find this deal?
    0Reply
  • Wilson Lee
    Birmingham, AL · Member since 2014 · 178 posts · 75 votes
    8y

    Contrasts,  you have one under contract. That is more experience than most in mobile homes parks, my self included.

    That 0.014% cap rate feels low.  Especially for this asset class. 

    If you continue:

    Look into hiring a qualified septic tank installer to do an inspection of the tanks.   They should be able to tell you the life remaining.  Also ask the owner for any paper record of the date they where installed.  That may be hard to come by though. Record keeping is not often prioritized by Mom and pop parks. 

    I would also check with the local zoning and permitting office.   Some parks where I am at are barred from bring in new trailers as the county adopted new rules about mobile homes if flood plains. 

    1Reply
  • Karla Yudy
    OP
    Investor · Raleigh, NC · Member since 2016 · 28 posts · 3 votes
    8y
    Originally posted by @Wilson Lee:

    Contrasts,  you have one under contract. That is more experience than most in mobile homes parks, my self included.

    That 0.014% cap rate feels low.  Especially for this asset class. 

    If you continue:

    Look into hiring a qualified septic tank installer to do an inspection of the tanks.   They should be able to tell you the life remaining.  Also ask the owner for any paper record of the date they where installed.  That may be hard to come by though. Record keeping is not often prioritized by Mom and pop parks. 

    I would also check with the local zoning and permitting office.   Some parks where I am at are barred from bring in new trailers as the county adopted new rules about mobile homes if flood plains. 

    Hey Wilson, thanks for the reply.

    Just curious how did you come up with the .014% cap rate? And what is a typical cap rate for mobile home parks? 

    Good suggestions as well, I'll definitely look into those. 

    Also, I forgot to mention in original post but the park owns the trailers as well, how much of a difference does that make?

    0Reply
  • Wilson Lee
    Birmingham, AL · Member since 2014 · 178 posts · 75 votes
    8y

    Net operating income / sales price = cap rate

    I just took your numbers,  If the 3,500 is not net operating income.  Then take out your operating expenses and do the math again.  The cap rate would be even smaller.

    For a mobile home park,  cap rates that I looked at where 8% to 10%. 

    As for the part about owning the trailers,  Get the year make and model and pull the value from the NADA listings.  You may be shocked (good or bad) to find the retail value of the mobile homes.

    http://www.nadaguides.com/Manufactured-Homes

    Renting mobile homes is not the same as renting mobile home lots. When renting the lots, Mobile home owners will stay put for years as they don't have the cash to move their trailer. But people renting mobile homes can move out when ever. So there is much more turn over cost. The cost to do any repairs in a mobile home cost about the same as a SFH. But, rahab in mobile homes do not increase sales price the same as in SFH.

    The 6 homes on 4 lots is also something to look into.  Check with the zoning board to see if that is a violation.

    2Reply
  • Karla Yudy
    OP
    Investor · Raleigh, NC · Member since 2016 · 28 posts · 3 votes
    8y
    Originally posted by @Wilson Lee:

    Net operating income / sales price = cap rate

    I just took your numbers,  If the 3,500 is not net operating income.  Then take out your operating expenses and do the math again.  The cap rate would be even smaller.

    For a mobile home park,  cap rates that I looked at where 8% to 10%. 

     Wouldn't cap rate be yearly? I think you calculated on a monthly basis, so before expenses the it would $3,500 X 12 / $252,000 = .16.6667 (not accurate since expenses need to be taken into account) ... curious as to why you used monthly ?

    would a 50% operating expense ratio be accurate? 12 * ($3,500 (.5)) / $252,000 = 8.33%

    0Reply
  • Karla Yudy
    OP
    Investor · Raleigh, NC · Member since 2016 · 28 posts · 3 votes
    8y

    @Wilson Lee

    Also, I know you said you haven't bought a mobile home yet, but you seem to know a lot about due diligence, keep looking you and stay disciplined and patient and you will!

    0Reply
  • Wilson Lee
    Birmingham, AL · Member since 2014 · 178 posts · 75 votes
    8y
    Originally posted by @Karla Yudy:
    Originally posted by @Wilson Lee:

    Net operating income / sales price = cap rate

    I just took your numbers,  If the 3,500 is not net operating income.  Then take out your operating expenses and do the math again.  The cap rate would be even smaller.

    For a mobile home park,  cap rates that I looked at where 8% to 10%. 

     Wouldn't cap rate be yearly? I think you calculated on a monthly basis, so before expenses the it would $3,500 X 12 / $252,000 = .16.6667 (not accurate since expenses need to be taken into account) ... curious as to why you used monthly ?

    would a 50% operating expense ratio be accurate? 12 * ($3,500 (.5)) / $252,000 = 8.33%

    Yeap,  But I first though the OP was saying $3,500 was the annual lot rent.  I leap before looking. 

    But we should not even be using 3,500 per month as the income, If he is going to own the homes, He was more operating expenses that need to come out of that.

    0Reply
  • Richard Allen
    Acworth, GA · Member since 2017 · 13 posts · 20 votes
    8y

    @Karla Yudy

    I recommend studying up on due diligence on mobile home parks, such as this manual:

    https://www.mobilehomeuniversity.com/mobile-home-p...

    You should make sure you have the well and septic inspected by professionals, and learn about the problems you can have with "private" utilities (alternatively, "public" utilities are city water and sewer, which is better to have).

    You need to verify with the city that the park is appropriately zoned for mobile homes. If it's not, that's a deal killer.

    You need to verify the income and expenses. Don't trust what you are told by the owner or a broker. Gather as much information as you can and talk to residents. Ask residents what they pay for rent. Walk the park and see if the homes that the owner claims are occupied actually look occupied. Call the companies that the owner has used for services, such as trash service and pumping the septic tanks, and ask how much the park has paid over the last year or two. Determine how much you will pay for taxes based on the price you are buying the park for. Do all the calculations.

    If you find some things need to be fixed, then you need to lower your offer price by the cost to make the fixes. Of course, knowing how much the fixes cost means you need to get bids from professionals. Be honest with the owner. Show them what you found in due diligence and the bids you acquired for fixes. Explain to them how you arrived at your offer price.

    You should be able to purchase a park with 8% or better capitalization rate (CAP), typically 10% or better. Make sure the difference between the CAP rate and the interest rate you get on the loan is 3% or better (called the "spread"). This ensures you get 20% or better cash on cash return, which is typical for mobile home parks right now.

    Net Operating Income (NOI) = yearly income - yearly expenses

    CAP = NOI/purchase price

    spread = CAP - loan interest rate

    2Reply
  • Paul Sofia
    Lender · Charlotte, NC · Member since 2016 · 374 posts · 172 votes
    8y

    You might better check and see if these homes are on separate lots being on city streets. If that is the case, it is not a MHP. I come across this quite often. If it is a MHP, figure DSCR based on pad rents only. There is quite a bit more DD you will need but as @Richard Allen has advised, I would advise the same and also go on their forum. Very informative.

    1Reply
  • Rachel H.
    San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes
    8y

    @Karla Yudy Definitely look at the expenses. If you can get a list of what was done and paid to contractors on the park for the past few years, that would help. Also, get a copy of the tax return to get a clear picture of what was reported. Good luck! 

    0Reply
  • Carl E.
    New to Real Estate · Salt Lake City, UT · Member since 2016 · 28 posts · 23 votes
    8y

    @Karla Yudy -- There is some good advice in here from @Richard Allen and @Paul Sofia

    Don't worry about the private well, that's no big deal. You can do the testing yourself and spend around 2k/yr for lab work. Replacing the pump will probably only cost you 1k if it goes bad.

    Private septic is no biggie either unless it's in bad shape. If that fails then you'll have to re-locate it somewhere new, so talk with a local septic installer and your health dept and determine what size system you'd need if doing new, then verify that you have the space to do so. This is what scares me about in-ground septics on MHPs: if that system fails and you don't have room for a new one you either have to 1) buy more land to put it on, 2) hook to city utilities if available (very costly!), or 3) build a wastewater treatment plant (so expensive that you will walk away from the park and say goodbye to your $250k, I can assure you of that)

    As far as cap rates, I wouldn't pay any more than a 20 cap (and I'm not talking cash-on-cash) for such a small property, because 1) you will probably not get a traditional bank to finance this, meaning expensive private loans or all cash from you, and 2) you have no real market to sell such a small park.

    In your shoes, I would go HARD for seller financing on this. Maybe a master lease/option, but then you risk giving the property back after you spend 2 years trying to get bank financing and your option expires.

    Best of luck!

    2Reply
  • Kendra Jones
    Belleville, IL · Member since 2016 · 13 posts · 2 votes
    6y

    So many gems here! Exactly what I needed though finding a sample purchase contract is quite difficult

    0Reply
  • Marlen Weber
    Specialist · Plano, TX · Member since 2020 · 2k+ posts · 861 votes
    6y

    @Richard Allen Awesome information. Thank you for sharing the link to MobileHomeUniversity.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free