Mobile Home Park - How do I know if it's a good investment?

18 Replies

I have 3 Mobile Home Parks under contract, and I am in over my head with the Due Diligence. I have never owned a park or mobile home before, so everything in the Mobile Home Realm is new to me. I am able to get the parks with 10% down (80% bank financing and 10% seller financing), but I still worry that I may be overpaying. The original numbers for each park looked good to me, but when I added 3% vacancy, 5% capEx, and note payments, my cash flow decreased significantly.  I have a 30 day Due Diligence period.  Example of Park 1: PP is $475,000; gross rent is $94k. Expenses are $27k. Loan terms are $380k 5/1ARM @ 6% for 25 yrs, $47,500 fixed @ 5% for 10 yrs. 7 POH's 4 vacant lots. 

YUP depends on the park

is this city sewer and water.. ?  streets in great condition..  POH homes are going to cost you to maintain you want to get rid of those right away.

are you self managing ??? 

If you have never bought a park and you have 3 in contract all on these kind of terms I am thinking the owners are bailing and want out and you may be over paying.. ???

I recently purchased my first mobile home park this year.  It has been a great experience so far and I'm learning a lot. Trust me there is a lot to learn.  My single most important criteria whether purchasing single family or a mobile home park:

Is my cash on cash return. I want all my initial outlay back within 5 years or less. In other words 20% or better return. As that money comes back I just reinvest it.

For the mobile home park is there additional opportunity to increase income. Are you thinking of adding 4 more units and increasing rents on the7 POH's?. In my case we can add another 20 units and increase rents by 3% each year for the next 5 years. As I'm sure you know folks living in a park community don't want to move because of the expense. They can absorb a small annual increase.

Mike

Thank you for your reply, Jay! 

I hope that the sellers aren't bailing and that the timing just worked out this way - 2 parks are from the same seller. He didn't want to seller finance but agreed if I bought both parks. Those parks were $140k with 12 lots (4 POHs, 4 rent to own contracts, 1 owner-occupied, 3 vacant lots, $29k NOI) and $250k 12 lots (2 rent to owns, 10 owner-occupied, 33k NOI. $235k without seller-financing). These 2 parks each have gravel roads in good condition. Both parks have their own wells and septic.
 

The reason I asked for seller-financing is bc I have limited capital. I am trying to leverage each dollar as much as possible to get enough cash flow to "retire" and invest full-time. 

The park I referred to in my earlier post is from a different seller. For this park, streets are paved and in good condition. This park has its own septic and well.  

The 3 parks are all over the state. There is management in place for 2 parks that are far away from my residence. The other park is close enough for me to manage.  

Good idea about selling the POHs. I'll run the numbers to make sure I can still cash flow without them. What else should I look out for? How do I know if my numbers work? How much CapEx should I account for in a MHP?

Mike, thank you for your input!

Do you look for 20% CoC return when you buy, or the projected income? Would you mind sharing an example of a park that you would think is a good deal?

The thing I like about the mix of the 3 parks I found is that 1 park is done- the cash flow is steady, expenses are low, maintenance is low, and it's basically all owner-occupied. There's also room to develop if I want to later on. 1 park is mostly owner-occupied, but it has some cash flow from POHs- which I can also sell and use the profit to buy 4 more homes to fill vacant lots. The last park is the cheapest, bc it has the most challenges. The POHs are older, the area is low-income (also low-crime), rural, and there are 3 vacant lots. I might take a different approach for this park, and fill the lots with POHs and market to nearby section 8 tenants? I like it bc of the current cash flow, but I'm thinking it will be really difficult to sell homes in a rural area. Maybe I can sell 4 of the POHs from the rural park to my other park?

@Jamie Beltran , congrats on getting 3 places under contract! We are still working on finding our first deal. I do not have much to offer in regards if it is a good investment. However I just finished listening to podcast #111 with Jefferson Lilly and it was fantastic!! If you have not heard it yet I would highly recommend it in the current situation you are in. I have never thought about purchasing a mobile home part but after this podcast it has opened my eyes to what else is out there. I am looking at small multis but it seems mobile homes offer the same benefits with less of the maintenance headaches since folks own their own units. 

Let us know how it works out for you! 

@Jamie Beltran , it sounds like you may be making a classic mistake and capitalizing the the rents from the park owned homes and rent to own homes at the same rate as the park itself. If you are doing that then selling off the POH might not work because you will probably not be able to sell them for nearly what you are paying for them. And rent to own should not be capitalized at all. Those should probably be valued as a note depending on the terms of the contract. It's hard to tell without knowing the exact breakdown of what value you are assigning to each component of these parks. 

Also, are these income and expense numbers yours or provided by the seller? The expenses on the one you provided looks a little low, but I have certainly seen a lot worse estimates from sellers/brokers.

10% down is good, but the valuations seems too high. It is hard to be sure without knowing what lot rents are. I tend to agree with @Edward B.  It is likely you are capitalizing POH rents.  When it comes to mobile home park investing we look to profit from renting the land. Thus, we think in terms of LOT rents.  Not to say a person can’t make money from renting POHs. 

I would prefer to buy one 45 lot park than 3 ea 15 lot parks.  Expense ratios are much higher on small parks.  In fact, you need a certain number of occupied lots just to cover “fixed expenses”. For instance, you may need profit from 3 lots to cover the manager expense, from 3 lots to cover property taxes, from 3 lots to cover water, maintenance, etc.  Pretty soon you need the profit from 10+ lots just to break even. 

This is just me, but when considering buying a park, I have a $/occupied lot figure in my head I use as a quick filter. This is varies per location. For example, if the park is in the range of $20K per occupied lot, then that park is worth a closer look, in most cases. If a park is in the range of $40K per lot, then that park better be in a great location (high lot rents) for me to take a closer look. Next I look at cap rates, COC, etc. If all of that checks, then I look for typical problem areas (sewer lagoons, poor markets, too many empty lots, etc).

As for due diligence, 30 days is very tight, unless it is 30 days after seller provides “everything!”  Even then, I would prefer more time. 

Best wishes!

@Kevin Moules , I would recommend you listen to the mobile home park investing pod cast from mobile home park academy. You’ll find great information about mobile home park investing. It’s a great way to educate yourself. I currently flip mobile homes but my wife and i are excited to own our first park! Good luck to you and your wife!
Originally posted by @Jose Ramos :
@Kevin Moules, I would recommend you listen to the mobile home park investing pod cast from mobile home park academy. You’ll find great information about mobile home park investing. It’s a great way to educate yourself. I currently flip mobile homes but my wife and i are excited to own our first park! Good luck to you and your wife!

 Did you just buy your first park or are you looking at buying your first one?

@Jason Ray Richardson , hello. I’m looking to buy my first park. I’ve been flipping mobile homes successfully for two years now and my wife and I have educated ourselves in the MHP side of things. MHP investing is where we see ourselves long term while still doing what we do now.

@Mike G. I had a wholesaler send me the deal. Some people jumped in front of me but because of the owner fixing to lose it because the taxes not being paid and I had the cash to close quick, I was able to grab it up. It also helped that the park was only about 2 1/2 hours from where I lived and I was already familiar with the area.

It seems to me with the parks that are on the market there are super awesome ones (with some heavy price tags) or ones that are distressed that are capitol intensive.  Either are barriers to entry in this market. Finding some off market deals or make some connections to some other owners I think is the only real way to go.

There seem to be only 2 extremes. The parks that are awesome (and are demanding large asking prices) or the distressed parks that are supper capitol intensive. Either are barriers of entry into this space. I think finding wholesale or off market deals, or establishing relationships with park owners that will one day sell, are the only real ways to go

@Jason Ray Richardson

It seems to me with the parks that are on the market there are super awesome ones (with some heavy price tags) or ones that are distressed that are capitol intensive. Either are barriers to entry in this market. Finding some off market deals or make some connections to some other owners I think is the only real way to go.

I agree with you 100% and that puts us right back to.. 

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

Marketing, Lead Generation, Sales, Negotiations, Close

(assuming while all this is going on you have capital and or financing dialed in along with due diligence)