First mobile home park

[Ryan Clayton]

hello all, I’ve been interested in purchasing a mobile home park for a while but know very little on the subject. I came across a park with an asking price of $120k for 10 units, 0 park owned homes, 100% occupancy rate, city water and sewer, and a cap rate of about 14%. The owner is willing to seller finance for 10% down.

It seems like the deal is almost to good to be legit, and I was curious to hear your guys’ thoughts.

Also the park is not local, so thoughts on doing my first park out of state would also be helpful

Any advice on how to conduct my reasearch and go about the process would also be greatly appreciated.

Thanks, Ryan

[Bill F.]

@Ryan Clayton

Bottom Line: Not a bad deal at the current price if you can find someone to manage it. 

The expenses look low and PM isn't included (I assumed a free lot for the part time manager). 

Take a look at what changing a few expenses does to the bottom line of a park. For a small MHP like this you live and die by your expenses. Things like utilities, snow removal, taxes can all change from year to year. That's why you want to see 3-5 years of returns. Making some small changes and adding a PM drops your NOI by 17%

Gross Rent $19,200.00

 Vacancy $480.00   (includes economic vacancy)

 GOI $18,720.00     (Next to Expenses are their percentage of GOI)

                      Pro Forma                   Modified

 Electric        $324.00 1.73%     $400.00 2.14% 

 Snow           $240.00 1.28%      $300.00 1.60% 

 Insurance    $504.00 2.69%     $504.00 2.69% 

 Tax              $1,200.00 6.41%   $1,300.00 6.94%

 Main            $960.00 5.13%      $1,500.00 8.01% 

 PM                                              $1,872.00 10.00%

 Exp            $3,228.00 17.24%   $5,876.00 31.39% 

NOI             $15,492.00               $12,844.00   

Say a 13 cap is the going rate for parks, these changes drop the price from around $120K to $99k. That's before you start talking about capital requirements for deferred maintenance and CapEx.

Can the Deal work at this price but with the modified number? 

Purchase Costs: $10k

10% down:          $12k

Reserves $15k ( 1yr op expense&debt servicing+$5k CapEx budget)

Total:                 $37K 

Cash Flow after Debt Servicing: $4,400 (25 year term @6%)

Yearly CoC: 12% and IRR after 10 year of 11%. This assumes a .5% growth rate in NOI and 5% broker fee.

Keep in mind how sensitive this property is to expenses though. A 10% increase in expenses leads to a 5% drop in CoC. This means if you don't stay on top of costs your returns will plummet.

Hope this helps.