EMPTY MHP purchase analysis/opinions?

Question

I have the opportunity to purchase a MHP with an interesting twist.  It is a total of  55+/- acres.  9+/- are developed with 27 pads.  The park has paved roads with curbing, drainage, etc.  Utilities are Public, individually metered, and all under ground.  It has a beautiful brick entrance way.  To say this is a nice park is an understatement.  Park is well located near a medium size city, close to the local hospital, and walking distance to bus stop.  The city limits join the property but it is not within them.  A small river runs along the longest boundary.  The undeveloped land has all engineering and surveying completed to build out to I believe a 170 pad park.  All 55 acres are $599000 or $399000 for the 9 developed acres and option on the rest.

The twist is that it is completely empty.  It was built right before the recession by an older couple who have since decided to retire and have no interest in doing anything further but enjoy their retirement.   Bush hogging and pole/meter base and homes can be sited immediately.

I currently receive $150 a month lot rent in a park not near as nice as this nor is it as well located.  I believe $200 a month rent is not unreasonable but I like to be very conservative so I say $175 lot rent would be safe.

Is this a deal?

How do I fill the park if I do purchase it?

I have talked with a local dealer who sales all of 21st repos in the area and he said he would be willing to put homes in the park and sale them sited.  Pros/cons of this?

Thanks for any advice or direction.

Jim Johnson · Answer

I find deals where the homes are in, but the park needs something on the income or expense side to achieve upside. I have done infill projects in the past and they are total brain damage. Doing things like sub metering utilities, increasing space rents or fixing operational issues. Because you will ask... each park I do must double in value, or increase by at least $400,000 for me to even look at it, and I like to get the 'bump' in under 100 days... so you can cash flow out of the box, put very little into the park, like sub metering water is about $150 / pad...

So for me... this would be a - RUN not walk away from deal... but everyone likes their own challenges and operates in their own strengths...

For what it is worth- I have only found 2 deals that look really good this week. Though, neither meets my minimums, each would add about 50% to the purchase price with almost no additional investment.

thumbs down from me... run

Chris C. · Answer

I am to get back with the owner with my offer of structuring the deal based on filling the park.  Payments will be based on occupancy.

The owner and I discussed a test to see if it can be filled under the current economic conditions.  We discussed part of the deal being a test on the first 4 lots.  If we can fill them within X amount of time then we will continue.  Part of my proposal will include how to structure that including the exit if needed.

I hope to partner with a dealer, and anybody else who will help, to fill the first 27 lots.  Once those are up and running I will probably have my own onsite dealership.  We are already laying the ground work for the dealership and onsite financing but will have to do alot of work to be compliant.

Thanks to all you guys for your responses.

What is the consensus?  Good oppurtunity or walk away?

Jason S. · Answer

Depending on your capitalization there may be an optty here, if interested, in capitalizing also on the mark-up of new homes sold by establishing a dealership/partnering with an on-site dealer, or???

Dale Osborn · Answer

You should at least tie the property up with a lease option for 2 years. Work with 21st Mortgage, Greentree Mortgage & Vanderbilt Mortgage to fill empty lots for you. With some homes in place with income coming in later, you can decide if you want to buy or walk away without too much out of your pocket. With the potential of having 170 occupied spaces you only have one direction to go = up!

Jim Johnson · Answer

The key here is in filling the lots. I know there are several home manufactures with flooring plans, and if 21st will put home in there that is great. You really need to know how many your can really sell. In the long run, you will probably have to but a whole lot of money into buying and moving homes, maybe more than the park is worth. 
Off the cuff, I would find a creative way to partner with the old owner- so you have no property payments. That will let you get some wind in your sail before you need to take them out of the property. I would then, put in a owner finance provision- creating some cash flow for them as they age, and make it roll into their estate after they pass. 
So you will need some cash, some creativity, and some terms... my 2 cents...