Help Looking Over Mobile Home Park Deal

5 Replies

Hey everyone,

My friend and I are looking at a small mobile home park in our county. Neither of us has ever bought or operated a MHP. My friend owns a business and several rental homes. The MHP we are looking at is owned by one of the largest real estate investors in our town, who happens to be an acquaintance of my friend.

Here are the details:

  • -14 Lots
  • - MHP includes the 14 mobile homes
  • - mobile homes are about 20-30 years old
  • - getting an an average of $545/month/home, though he is in the process of raising rents to about $650. (some are there, some are on an older lease that has the rates in the $400s).
  • - park has a septic system that was installed 5 years ago by the previous owner; one large system for all the homes, not individual septic tanks for each
  • - at 100% occupancy
  • - lower income tenants so has to deal with people being late or not paying;
  • - park expenses are insurance, home upkeep/repairs, garbage, and lawncare (tenants don't take care of their own yards)
  • - Took in about $75k last year, spend $15.6k on repairs, and $1.6k for dumpster.
  • - Net income was around $40k.
  • - Asking price is $300,000.

Here's my two questions: (i) does this seem like a good investment? (ii) is this price reasonable?

Hi Micah, since you are actually buying the homes and renting those out you are actually buying an apartment complex that has 30 year old mobile homes as the apartments. The big question is have these homes been maintained or are they all ready to fall down? Also, what size are the homes and what are the rent comps? Is the park on city water or is their a well? 

What’s your plan to do with the mobile homes?  Turn them to owner occupied? Keep renting out?  What’s the lot rent in your area?  You could just sell (cheaply) and just start being a lot rent property. 

     It Says they spent over 15,000 in repairs I’d say that’s conservative, that’s also almost 1,000 per each mobile home annually. 

       The deal sounds good on the surface, I’d keep going at a minimum. Though know what your end goal is.  Do you want a 20-30 year old trailer that you are responsible for repairing. Or do you want to buy some land that has lot rent paying tenants on it?      

      I’m just guessing but at 75000 minus the repairs and minus yard work I’d roughly be at 57,000.  So if the average lot rent in your area is 340 dollars you could make the same amount of gross with a lot less work on your part. 

    Make the tenants do their own Lawncare (or increase lot rent to cover it dollar for dollar). 

     This is just me making a wag at it all.  I’m currently looking for a MHP to buy and my end goal is always lot renters.  I have a multi family and I spend a ton on repairs.  I’d rather just rent a space to someone.  

@Micah Cobb The main risk in this deal is the POHs.  As mentioned above by @Thomas Eddie the way this park is being run does not take advantage of the best qualities of MHP, which is tenant ownership.  When a tenant owns their home, their entire perspective shifts from being a renter, to being a homeowner.  That creates pride of ownership, a better community, and results in WAAAY lower turnover, and of course the maintenance and repairs to the homes come off your plate.  

The second item of risk is the single septic system.  It is not a deal killer, but certainly presents risk when the entire park could be out of a sewage solution if the septic has a problem. You can pump it out, but that would only be temporary.  It's good that a new system was recently installed, but keep that in mind as risk in the deal.  

If you were to approach this park and take advantage of the best quality of MHP, you would want to sell all the homes and run it as "pad rent only".  This involves a fair amount of work, so make sure the deal is worth it to you.  Taking that approach, the numbers would look more like this:

- pad rent of $300 x 14 x 12 months = 50k (you'll want to do a rent survey to confirm what the market pad rent is) 

- expenses of 40% (this can vary, but based on what you shared you should be able to run the park near 40%) 

- NOI of 30K

With a price of 300k, that is a 10cap deal.  

You can continue to run the park as is with the goal of selling homes as they become vacant.  It will take awhile, but as you transition the tenant base from "renter" to "homeowner" you will see the park reputation improve, it will run better, and ultimately it will be a better investment to own.