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

Question

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.

Mike Blackwood · Answer

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

Jason Ray Richardson · Answer

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.

Jamie Beltran · Answer

Just an update for everyone following this thread - I ended up not purchasing any of the parks I had under contract. Financing was an issue.

Edward B. · Answer

@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.

Kevin Moules · Answer

@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!

Mike G. · Answer

@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

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

Jason Ray Richardson · Answer

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 · Answer

@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.

Mike G. · Answer

@Jason Ray Richardson I am still looking to purchase my first park as well. How did you find yours?

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

Most Popular Reply