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.
What's the lot rent?
Without knowing its difficult to say if its a good deal or not. The Pro Forma NOI cash flow from each lot is $140, but that isn't enough to go on.
At the surface it seems like a good deal, depending on how far away you live. The issue you run into with small parks like this one is that their rents don't support a manager, so you either bite the bullet and give up 10% of your cash flow for someone to take care of emergencies or self manage.
Also a 14 Cap seems high.
If you get a full pro forma post it and we can take a look.
Thanks Bill, here’s some more info on the park
current lot rent is $160/mo
Electric for light poles $27/mo
Snow removal $20/mo
Property taxes $100/mo
Tenants pay water and sewer
Tenants responsible for mowing and snow (park only plows main road)
I would also run test ads to test to see if you can fill vacancies easily, I would research the market to see if there are a lot of jobs for low income folks in the area (stores, gas stations, construction, blue collar jobs, etc), check the crime rate, find out what the median house hold income is, find out what the median house price is, check if there are schools close by for families, etc. your due diligence is going to be a huge list so that you know this will Be a good-great investment for you. Hope that helps!
thanks Gulliver, I assume citydata would be a good place to find that information?
@Ryan Clayton Wonder why the owner is selling? Best to check the seller's records (i.e. tax returns, contractor work, etc.). Perhaps there's some deferred maintenance and/or problem tenants in the park. If you keep asking questions, you'll eventually get the answers you need to make a decision. Good luck!
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)
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.
thanks for all the info everyone and thanks @Bill F. for the in depth breakdown.
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