Is this mobile home park deal a good deal?

Mobile Home Park Investing

Is this mobile home park deal a good deal?

Kellen Driscoll

Investor · FL · Member since 2015 · 103 posts · 10 votes

Hey BP,

I have a deal under contract in Florida and I am considering the due diligence that I have found so far. The park is on well and septic systems. 1 well and 7 septic systems which have new components as of 2014. The park consists of 29 park owned homes. There are 2 vacant homes currently.

Purchase price $875,000 with 20k seller credit for closing costs
Gross current income 188k, I am speculating the NOI to be half of that although the actual number seems to be quite a bit higher. The other two homes could rent for $650-750.
Leases are month to month
The homes are 1970-1990 SW models
The roads have been repaired recently, new electric systems, light rehabs to almost all the homes etc

Financing would consist of a 25% down 25-30yr amortization loan.

Before I order the paid for inspections, what do you fellow investors think?

Thanks!

Kellen

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Most Popular Reply

Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes

7y

@Kellen Driscoll you are getting some great candid guidance in this thread. Fundamentally, most MHP investors are seeking recession resistant cash flow, so the goal is to have zero POHs. That way, your tenants have a vested interest in staying in the park, regardless of what occurs in their life or the world around them. When you buy a park with all POHs, you are basically buying an apartment (but with more headaches) and the tenants can simply gather their belongings and leave anytime they want. I’m not suggesting there would never be a case to buy a park with all POHs, but there would need to be an extremely compelling reason (a price well below market, a ton of upside, or a 5 star location) to do that. And unless the demand for that particular location is recession proof, then you will want to sell all the homes and convert to all tenant owned. That’s no small task, so make sure it’s worth it.

With that said, the most important variable you will need to ferret out is what the lot rent will be, once you sell the homes. Expand your radius to find comps, check the 2 bed apartment rents (they should be 2x lot rent), and run some test ads to sell one of your future homes to a tenant buyer. When you receive calls, you can ask them what they are finding out there. Collectively, that should give you a better handle what your competition is and what you will be able to charge for lot rent. Also, a 43% expense ratio is not very realistic for a small park with no city services and all POHs. Expect that to be a lot higher while you own the homes and come down closer to 50% after you’ve sold off all the homes. My gut says there are better opportunities out there so I would pass, but if you continue to pursue it, I would encourage you to be extremely conservative as you underwrite this deal.

All the best,

Jack

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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
7y
30k/space sounds avg (my quick method). Do you plan to hold the units or sell those off and just rent the ground . This deal sounds like it is worth investigating to me.
1 Reply
Kellen Driscoll
OP
Investor · FL · Member since 2015 · 103 posts · 10 votes
7y
@John Thedford Well I was playing around with the idea of selling the homes. My concern is that since the tenants are on month to month leases, they might be less likely to want to buy the homes and stay long term? Maybe that won’t make a difference but I’m not sure.
0 Reply
John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
7y
what is the demand for mobile homes in the local market and how does yours compare to other similar parks.
0 Reply
Jon Dorsey
Rental Property Investor · Millersville, MD · Member since 2017 · 127 posts · 44 votes
7y
Whats lot rent in the area vs POH rent?
What business model are you going with: renting out POHs or trying to convert to all TOGs?
Do you have a maintenance man?
Are these seasonal renters (snowbirds) or long term renters?
You mentioned the numbers are off. What are you showing for park vs homes inc/exp. You’re probably looking at a total expense ratio of 55-65% on this property: private water/sewer, POHs, smaller park.
1 Reply
Dennis M.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
@Kellen Driscoll
1970 single wide trailers ... pass
1 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y
29 park owned homes...I would not even consider buying. Far too much work. I would rather invest in a apartment building with less maintiance and fewer headaches.
5 Reply
Jacob Somerville
Member since 2017 · 2 posts · 0 votes
7y
With older mobile homes you would have higher costs of maintenance vs apartments and houses. I would want a quicker return on my investment on mobile homes. You would have a bit less potential to gain profit vs a mobile home park that only rents the lots. If you bought a park that didn’t own the homes you could acquire them cheap and rent them out.
0 Reply
Charles Kao
Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes
7y
@Kellen Driscoll
I am assuming all the homes are rolled into that deal so curious what the breakdown on the price in for park and park owned homes. What is the breakdown of the lot rents? Personally that sounds high to me. For reference I just offered on a park 625k that needed 300k septic replacement that had 80 spaces with 40 occupied and 20 actually paying. Only offered that much because of upside and lot rents were 326 a month. Another that was 88 spaces stabilized and 90 percent occupancy offered 1.1 million on with similar lot rent numbers.
0 Reply
Alex BekezaBusiness Member
Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
7y
@Kellen Driscoll
Proceed with caution on that financing offer. I don't know of anyone funding that type of deal under those terms for 29 POHs. Please do share the lender if you indeed have an LOI.
The fact is that most lenders do not assign value to the POHs...at all. They will only consider the land and its ability to produce income via lot rent. That 75% LTV would be a lot less than 75% of purchase price in the scenario of all POHs.
Personally, I say keep grinding and searching until you find a park with next to zero Park Owned Homes. Best of luck adding the next MHP to your portfolio!
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Kellen Driscoll
OP
Investor · FL · Member since 2015 · 103 posts · 10 votes
7y
Upon further digging it looks like the oldest home is actually 1985. The lot rents in the park across the street are around $600, but that park is 55+ with a pool, clubhouse, double wides etc. There aren’t a lot of parks in the immediate area to compare.
0 Reply
Kellen Driscoll
OP
Investor · FL · Member since 2015 · 103 posts · 10 votes
7y
@Jon Dorsey Hey Jon, There aren’t many comps in the area to compare. The smaller maintenance tasks are taken care of by the park manager. I have thought about trying to sell the homes back to the tenants as it looks like the majority of them have been there for a couple years atleast. I am coming up with at 43% expense ratio with the best numbers I can find. Thanks!
1 Reply
Kellen Driscoll
OP
Investor · FL · Member since 2015 · 103 posts · 10 votes
7y
@Dennis M. It looks like the oldest is actually 1985
0 Reply
Kellen Driscoll
OP
Investor · FL · Member since 2015 · 103 posts · 10 votes
7y
@Charles Kao The homes are rented for $650-$750
0 Reply
Jack Martin
Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
7y
@Kellen Driscoll you are getting some great candid guidance in this thread. Fundamentally, most MHP investors are seeking recession resistant cash flow, so the goal is to have zero POHs. That way, your tenants have a vested interest in staying in the park, regardless of what occurs in their life or the world around them. When you buy a park with all POHs, you are basically buying an apartment (but with more headaches) and the tenants can simply gather their belongings and leave anytime they want. I’m not suggesting there would never be a case to buy a park with all POHs, but there would need to be an extremely compelling reason (a price well below market, a ton of upside, or a 5 star location) to do that. And unless the demand for that particular location is recession proof, then you will want to sell all the homes and convert to all tenant owned. That’s no small task, so make sure it’s worth it.
With that said, the most important variable you will need to ferret out is what the lot rent will be, once you sell the homes. Expand your radius to find comps, check the 2 bed apartment rents (they should be 2x lot rent), and run some test ads to sell one of your future homes to a tenant buyer. When you receive calls, you can ask them what they are finding out there. Collectively, that should give you a better handle what your competition is and what you will be able to charge for lot rent. Also, a 43% expense ratio is not very realistic for a small park with no city services and all POHs. Expect that to be a lot higher while you own the homes and come down closer to 50% after you’ve sold off all the homes. My gut says there are better opportunities out there so I would pass, but if you continue to pursue it, I would encourage you to be extremely conservative as you underwrite this deal.
All the best,
Jack
5 Reply
Mike G.
Real Estate Agent · Las Vegas, NV · Member since 2016 · 589 posts · 275 votes
7y
@Kellen Driscoll
The seller should have 2 P&Ls for this park broken into the lot rent and then one for the rentals themselves. If he does not, and his pro forma expenses are downplayed in any way your expense ratio for this purchase could be much higher than you anticipate even with a WCS in mind. As it was very well explained by @Jack Martin there are absolutely Better deals out there to be bad with much less risk in the POHs scenario. I would pass as I am looking for a park to purchase and have analyzed many deals I’ve tightened up my criteria which slows down the purchase, however a MHP isn’t something I want to rush or have buyers remorse on. Tread lightly with this one if you pursue it further.
0 Reply
Ian Tudor
Specialist · Charlotte, NC · Member since 2013 · 260 posts · 245 votes
7y
@Kellen Driscoll - Homes are rented for $650 and lot rent at the park across the street is $600. Lot rent as in the tenant owns their trailer and pays to rent the dirt. Is that correct? What else is included in the lot rent?
Most newer MHP investors aren’t fans of POHs but the truth is the Southeast is full of parks that have some component of POHs. You won’t be doing many deals if all you plan to purchase is lot rental parks. Also the returns will be considerably lower. It’s way easier to manage and less room for improvement unless they haven’t raised rents to market, which does happen from time to time. POH parks usually have the most upside if they are mismanaged.
So, if you sell off all the homes for a reasonable price ($5,000) and peg lot rent at $500, then you could buy down your basis a bit and reduce operating expenses considerably. With 29 homes sold at $5,000 and $500 lot rent, you should be between a 14-15 cap. I’d say that is a win. This is assuming you are in a decent location, not the middle of nowhere.
Yes, it will be hard work but I would definitely consider if you have the capacity to make this work. FL is a little funky as well because parks have a prospectus that you have to abide by. Read carefully as they can deter you from certain actions.
2 Reply
Kellen Driscoll
OP
Investor · FL · Member since 2015 · 103 posts · 10 votes
7y
@Ian Tudor The park acrosss the street is quite a bit nicer with a double wide compatible lot, heated pool, clubhouse, water included in lot rent, and within a gated 55+ community. I would guess $400 in lot rent for this park is closer to the mark. Water is included but that is about all. I spoke with the zoning department today about selling the homes to the tenants. They said that since the property is zoned as a single parcel that there’s no way for them to determine actual lots or just that they wont? She made it sound like if I were to sell them back to the tenants that the actual lot boundary is up to my discretion.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
your confusing things.. when folks say sell the home they are saying sell the POH not the lot under it.
its common to sell the POH or give them to tenants and raise the space rent.
although personally for me I would never buy any park on private utls. only city sewer and water..
if those systems fail like @Charles Kao mentioned its huge money to fix them.. not worth the risk as others have stated you could buy a small apartment and not deal with the risk.
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0 Reply
Kellen Driscoll
OP
Investor · FL · Member since 2015 · 103 posts · 10 votes
7y
@Jay Hinrichs @Jay Hinrichs Hey Jay, I understand that I would be selling the home, I guess I didn’t realize that the lots aren’t broken up by the zoning department and instead broken up by the owners discretion? The private utilities doesn’t scare me much, they have all been replaced recently and the old ones have withstood a decent amount of time. I am also an engineer and I have worked on and overhauled in the individual components more than a few times myself.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Kellen Driscoll:
@Jay Hinrichs
@Jay Hinrichs
Hey Jay,
I understand that I would be selling the home, I guess I didn’t realize that the lots aren’t broken up by the zoning department and instead broken up by the owners discretion?
The private utilities doesn’t scare me much, they have all been replaced recently and the old ones have withstood a decent amount of time. I am also an engineer and I have worked on and overhauled in the individual components more than a few times myself.
you would need to put a subdivision plat on on the ground or a condo plat.. to sell land and MH.. if your willing to risk private utls.. then there you have it.. Myself been there done that never again LOL.. I have owned 4 parks.. 1 had private utls and it was very very challenging.
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1 Reply
Jon Dorsey
Rental Property Investor · Millersville, MD · Member since 2017 · 127 posts · 44 votes
7y
Make sure you budget in a higher capital reserve to cover the private W/S when they fail down the road. The good news is that it sounds like they’ve been updated recently.
0 Reply
Kellen Driscoll
OP
Investor · FL · Member since 2015 · 103 posts · 10 votes
7y
At this point I have done quite a bit of due dilligence. I have spoken to the previous owner of the park as well as the current owner. I have contacted all the regulatory authorities, as well as trade professionals and I have yet to hear a negative thing about the park. I can budget for CapEx, but as far as the private utilities costing me money...the well is tested for $450 per month and the 7 septic tanks will need to be pumped every couple of years or so. Other related expenses for water leaks or electric component malfunctions should be minimized due new motors, controllers, wiring, and all new pvc water/sewer piping. The search for parks with majority tenant owned homes is yielding deals that are few and far between and usually at quite a premium. This park is 2 hours from my house so I can be as active as I need to be in managing it until it’s self sufficient with a good manager in place. Maybe I am convincing myself it’s a good deal or the due dilligence is reassuring me? Or maybe both?
0 Reply
Brianne H.
Investor · Calgary, Alberta · Member since 2016 · 168 posts · 123 votes
7y
@Kellen Driscoll I know nothing about mobile home parks, but only 1 well for 29 homes? How much is that well producing, and how old is it? That's putting a lot of reliability on one well, which isn't something I'd do on my own personal well at home. 7 septic systems - are there fields or mounds, or just the tanks? If it's only tanks they're going to need to be pumped more than every couple years... If there's fields or mounds just remember it's more stuff to go wrong, and very expensively wrong.
0 Reply
Jon Dorsey
Rental Property Investor · Millersville, MD · Member since 2017 · 127 posts · 44 votes
7y
As stated throughout, keep your underwriting/budgeting very conservative. You’ll probably find that the homes need a little TLC. Make a rotation to pump the septics so you’re being proactive instead of reactive and it’ll help spread out the costs. If you only have one pump on the well look into putting in a backup pump or drilling a second well.
Based on your stated $188k gross income with 27 (2 vacant) POHs that comes out to $580/mo. Speculating you could set lot rent between $450-$500.
Rough Valuation:
MHP FMV: 450x27x60=$729k
POH Value: 29x5k=$145K
Total:$874k
This puts you in the ballpark and being close by will be needed. Write out your game plan and stick to it. Continue to educate yourself and don’t be afraid to ask for help. Get a good team in place (manager, maintenance man, handyman, private W/S techs, etc). Let us know how it goes.
0 Reply
Kellen Driscoll
OP
Investor · FL · Member since 2015 · 103 posts · 10 votes
7y
@Jon Dorsey Hey Jon thanks for all the great advice! The 188,000 gross is actually on the 26 occupied homes, there are two additional homes that can be rented for roughly 700 as well.
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