Bid Accepted! Please help!

14 Replies

Evening BP Family, I need you help. I just want a bid on my first mobile home park. I got it for 415k just outside Huntsville in Toney,AL. Here is what I know: 33 pads all renter owned 5 could still be developed $150 a month All separately metered and pay their own utilities They do have septic tanks - Are their issues with that? What else am I missing? Where do a majority of upkeep cost go? I’m really excited but REALLY nervous about what I don’t know about mobile home investing. Please help. It seems like a good deal but what am I forgetting????

@Adam Philpot Congrats on getting a park under contract. 

Did you find the park through a broker or on your own? 

Start here. You'll want to get three to five years of financial statements. Rent rolls, utility maintenance contracts, leases. If everything checks out you can move onto the physical inspection of the park.

Arrange for a Phase I inspection and to have each of the septic systems inspected. Are they one system per home or a series of group systems? 

Talk with the town/county/state board of health (or who every regulates septic system in your area) to see what the status of your septic and to see what regulations have changed since yours was installed. If the results are less than stellar for your system, you may think about getting a quote to install a new system to get an idea of replacement cost. 

Have survey done to know what you own.

Check out Jefferson Lilly's Podcast episodes 4&5 for more specifics about off and onsite DD.

Bill - thank you so much! I will get right on this. From your perspective, what percentage should I account for expense if tenant owners pay utilities (I figure I have to cover Lawncare, septic cleaning/changes)?

I’m assuming low monthly expenses but have been able to find any documentation online for me to validate.

I’m trying to get a rough NOI. I’m not 100% I’m getting a good deal yet mostly because I’m so green to mobile home investing.

Thank you again! BP is a life saver

Originally posted by @Adam Philpot :

Bill - thank you so much! I will get right on this. From your perspective, what percentage should I account for expense if tenant owners pay utilities (I figure I have to cover Lawncare, septic cleaning/changes)?

I’m assuming low monthly expenses but have been able to find any documentation online for me to validate.

I'm trying to get a rough NOI. I'm not 100% I'm getting a good deal yet mostly because I'm so green to mobile home investing.

Thank you again! BP is a life saver

A rough and conservative rule of thumb is about 40% expense ratio for parks with private utilities. However, once you get three-five years of tax returns you can average out expenses, compare them to the bank statements to see if they jibe. 

If I saw anything below 30%, I'd start to think about deferred maintenance and what places that could rear its head.

Another expense you'll need to consider that isn't in place now is onsite management to enforce rules and how you'll handle rent collections.

@Adam Philpot t  Bill made great comments. 

I would just add, I'm not familiar with parks at these relatively lower lot rent levels, but with 150 lot rents, i wouldn't over look the fact that its possible to run at a slightly higher expense ratio since you don't have as much space to spread the expenses as you would on even a 225 lot rent. I wouldn't think 40% is unreasonable but probably wouldn't be shocked to see actual expenses higher than that . Learning what your market is at will be critical in valuing any potential upside and opportunity here.    Its def possible you have a deal on your hands if you can get everything to check out.  I was trying to look up the market on best places.net but the town Toney AL wasn't popping. Id just confirm the metrics on your average rents, unemployment, vacany rates. Most of that stuff will be covered in DD but just wondering . Good luck. 

I always hear mention of this 40%, and it seems excessive. Does this include debt service? If he has 40% expenses and then after debt services he will have barely anything left.
What will he be spending $25,000 a year on?

If he is going to net 36K before debt services this is just a 8.6 cap?

@Adam Philpot Congrats! Now you'll just have to verify all the numbers, look into the infrastructure and determine the tenant base in the park. The seller can get you most of the information via tax returns, contractor invoices paid, etc. The rest you may have to do some digging around, talking to people in the park, contractors who've done work there and your local government office regarding any concerns you have about the park (i.e. zoning, flood plain, etc). Hope that helps! 

@Ingrid J. and @Chad C. The expense ratio is the total operating expenses (same ones you use to arrive at NOI) divided by the GOI.

Debt Servicing is not included in the calculation. 

Small parks have a lot of the same fixed costs of a large park without as may lots to spread expenses over, which raises the exp ratio. Add in repair and maintenance for multiple septic systems and the ratio goes up even more.

As for what could he spend $24k/yr on... Fixed expenses like taxes, insurance, lawn care, tax prep, licenses, scheduled septic pumping,  trash, permits, ect can easily be north of $10k/yr. 

Add in some road repair, the park's electricity bill, septic repair, tree trimming, office supplies, general operating expenses and the remaining $14k can disappear real quick.

@Bill F. Thanks for answering. 

I understand that the NOI does not include the debt service. And it makes sense, as financing can be different from buyer to buyer.

What I haven't found any numbers on is this: When you have calculated the NOI - how big is usually the debt service? Like what would be common? Let's say I buy a park and my NOI is 80 k annually. What would be a healthy portion of that to dedicate to the debt service?

Originally posted by @Ingrid J. :

@Bill F. Thanks for answering. 

I understand that the NOI does not include the debt service. And it makes sense, as financing can be different from buyer to buyer.

What I haven't found any numbers on is this: When you have calculated the NOI - how big is usually the debt service? Like what would be common? Let's say I buy a park and my NOI is 80 k annually. What would be a healthy portion of that to dedicate to the debt service?

Since most banks have a minimum DSCR of 1.2,maybe 1.25. then, at max, the debt could be 80-83% of NOI.

In your example, that is $64-66.6K.