I've nearly got under contract my first mobile home park in central Illinois and I feel at a good price - where I'm unsure is some of the projected expenses that aren't necessarily accounted for or broken down by the current owner. I.E. telephone and advertising costs haven't been accounted for and all the management, payroll, and all types of repairs and improvements are lumped as one sum.
I've prepared a break down of what the projected expenses would be.
Any input would be widely appreciated! Where this deal shines is that lot rents are about $75 below market and the park has some vacancies, both pads and homes, that once filled up will bump this NOI higher.
If you see expenditures I'm missing, or seem unrealistic let me know! Be my extra set of eyes.
Are you CAPing the POH rent or segregating it out? I ask bc I’d breakup income and expense by land/lot rent and POHs rent/MAINT/repair
Without knowing the age or conditions of the 25 park owned homes $7200/yr for repairs seem pretty low. One or two heavy turnovers will eat all of that up, although you did say some of the mgmnt expense could really be R&M?
If you are inheriting any significant deferred maintenance you'll need to serious working capital years 1-2 to get that caught up so be prepared if that's the case.
Also - what's the story on the well and septic? Any monitoring or maintenance costs there? And as I'm sure you're aware septic issues can be big $$ to address. Make sure you are doing adequate due diligence on those systems.
I agree with @Ryan Murdock that expenses are pretty low for the 25 POH's. You could run this as a horizontal apartment if that is your goal. But banks won't underwrite it that way, they only take the land portion(lot rent) portion into account mostly when underwriting and determining the value of the park.
Not sure if it city water/sewer or well/septic. IF its well/septic, budget for a little more expenses on the yearly cost, and on the backend, plan for something to go wrong....meaning raise a little more money than needed or put it into your analysis of a park for future capital expenditures.
Also, agree with @Jon Dorsey that you shouldn't cap that rentals. you should have too seperate incomes/expenses for such items. and then it can all flow into one statement. On the back end, if you ever go to sell the property, investors are going to want to see the breakout of each.
We manage a park in Southwest Illinois.
1. Check your county to see if there are any mobile home dealerships left. If there are none, where will you find the homes to finish your park?
2. You will end up buying the rest of the homes if in a depressed area. Tenants and toilets oh my!
3. you can spend a little more on maintenance since mobile homes are subject to personal property tax not real estate tax. That saves $1,000.00 a year or more versus Single family homes RE Taxes depending on which county they are located in.
3. How old is the park infrastructure? Have you inspected the meter bases. Are the power line poles propped up? Figure $6,700 per four pads to convert and upgrade to underground supply lines.
4. How old and what type of water lines are there? If owned by the utility not a big deal. If you own them it can add up. 1960's polyvinyl or butyl is about to reach terminal velocity. Allow $2,500 per lot when the time comes to rip them and and start over. Have a lot of trees, figure a repair per year due to root damage.
5. How many Masonite sided homes? If not sealed and cared for the seems leak and rot your exterior stud walls beyond repair.
6. How many steel sided homes? These are your least problematic.
7. Liability Insurance? Contact Shelter Insurance. Mark Wojick
Good Luck and Good Investing
Thank you all for insight! @Jon Dorsey I did CAP the POHs as well. I'll work on breaking that out.
I guess I'm not sure on how to break up the expenses for the two. Is Payroll a 50/50 split between the two; does landscaping get expended to the land only since its exterior?, etc. I find that I can fudge those numbers around until I'm happy with it. Regardless, split, it does put the Cap for land at 3.55% and POHs at 11.2%. By raising lot rents $50/month that does bump it in to the 8% range.
@Ryan Murdock The homes are indeed older, early 80s and 70s for most but have been well taken care of by the park owner. I did include much of the management as R&M so I've reflected that differently. The park is on city water and sewer but does have a sort of holding tank for the sewer before its connected to the city sewer. Water dept. has never had any issues in our out of the park but has no knowledge once its on the property. It likely is older plumbing that will need serious maintenance.
@George Skidis Those are some good questions to tackle.
1. Why do I need to check the county only? It was my understanding as long as the county allows transport and approval of the home its okay. School me on this one, please.
2. Yes, I'm figuring for ending up with the homes as I sell them to tenants over time.
3. Agreed with the PP taxes
4. Built in 1966. I'll be driving through today to inspect power poles. I believe the meters that need to be upgraded could be done from above instead of digging - but I really don't know that. Again, school me, please.
5. I need to verify the water lines. Thanks for the ball park number on replacing - I'm assuming that will have to happen
6. Very few masonite homes, most are steel sided and many have been nicely repainted on the exterior.
7. Thanks for the heads up on that.
For breaking apart expenses. If it has to do with running the park then keep it there. Expenses for POHs are maintenance on those units from tenants throughout the year, turnaround maintenance costs to get it ready for a new tenant, insurance and licensing for the POHs.
When mentioning the county I was referring to the possibility that no new homes would be locally available to fill your park. It also means that no new buyers will be looking to move to your park.
In Saint Clair County a home must be 1980 or newer before they will even consider allowing transport to other than a shredder. Then it has to pass inspection before moving it.
Many used mobile homes you can buy and move have been butchered. The tongue, road wheels and axles have been removed. This adds to the cost of transport.
Utility poles rot. Why replace a rotting pole with another soon to rot pole. In Saint Clair County a new pole must be 20 feet out of the ground and 5 feet in the ground. It must be a wood treated telephone pole. By the time I could buy, transport and install a qualifying type whatever pole it is within a few bucks of having Ameren install a five or six gang pedestal to serve five or six lots. No overhead wires. Nothing blown over in a storm that you would need to pay for. Most insurance policies cover buildings and other structures many do not cover stand alone utilities.
What passed an acceptable electrical boxes in 1960 are so old and obsolete it is a crying shame. New electrical boxes need to have a disconnect arm inside them that is not visible when the meter is installed and the cover in place. Also you may need to install a 200 AMP box instead of a 100 Amp because the utility doesn't want to bend their wires more than 135 degrees to install them.
Ameren is here right now installing a pedestal to serve four lots because the old equipment was damaged in a storm.
Thanks for the schooling @George Skidis ! I appreciate the insight! As far as bringing in new homes I'd have to really be convinced to do something older than 1980 because they generally just need too much work.
We'll have to make sure to connect if we're ever in eachother's neck of the woods.
how are u funding the acquisition?
@Steven J. I'd take a look at those park owned homes to see if there's any deferred maintenance you'll need to deal with (i.e. roof, air conditioning, etc.). If the owner has any invoices of any work done to the homes and/or the park, it'll give you a better idea of what you're getting into. Good luck with the deal!
Thanks @Rachel H. The homes that he has recently fixed up look really nice but of course with older homes there is always going to be some sort of maintenance to work on.
Did have a discussion with an electrician about upgrading some of the 60 amp service. Unfortunately, the power company is recently requiring new fancy service boxes to be installed so this could add a fortune if that's the case. I'll find out next week what the word is and renegotiate lower price if thats the case.
@Steven J. This analysis does not fit the asset. This looks like something to be used on an apartment or a sfh rental. MHP's have to be treated much differently. For instance. You have $205 as the home portion of the rent in the NOI at a 16.4 cap. That means you are paying $15,000 for each home. That is what is meant by "don't cap homes" and that is why. As you said, these are older homes and most likely worth 1/3 of that. The best thing to do is to evaluate the property on a lot rent only basis. Deduct all of the expenses that you would incur if the tenants owned every home. Then you can ad a fair price for each home. That number would never be less than your think you could sell one for without question. If that number is $3000 then that's all you should pay for it. Then you want to work out all of your home expenses and make sure it will not bankrupt you. The goal should be to convert all of the renters to owners as soon as possible so you do not have to deal with the homes. That should make the home expenses heavy in the first few years but drop off as time goes by. Sometimes thats easy and sometimes it is not. The nice thing about the POH's is that you can raise the lot rent to market and the renters will never notice. They pay $175/$205 and you can change that to $250/$130 with no real cost change to them. If the homes are real sketchy you are better off just giving them to the long time tenants for $1 or some other reasonable number that they will jump at.
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