Mobile Home Park in TN

12 Replies

Hey everyone,

I have become obsessed with Mobile Home Park Investing. I continue to learn daily more about Parks and tracking down MHP owners to see if they would be interested in selling their Parks. 

I came across an MHP in TN that is 32 LOTS, on 3 10,000 gallon tanks septic tanks and all lots filled. The owner is asking for 800k and stated the MHP brings in 100k yearly. 

Lot rent for them is $175 and are all tenants' own homes. Seller stated he would be interested in doing seller financing if the down payment is 250k. 

I am fairly new to this but have built a solid relationship with the seller. Wondering if I have a decent deal here to work with? Any ideas as well where I can get financing options on this deal through a lender?

Thank you, guys!

@Brahan Gamarra - the seller said "the MHP brings in $100k yearly" and even if he meant revenue it doesn't add up - 32 lots x $175LR x 12 months = $67,200. Assuming you're able to agree on a price that works you shouldn't have an issue financing the park with a local lender or loan broker. A lot will depend on your guarantee though.

I agree with @Chris Ebert  on this one - try to get some actual numbers. You can ballpark these if he doesn't have records (many don't), but be super conservative and make sure to account for anything and everything you can think of in your own proforma.

If the park did pull in $100k, assuming a 40% expense ratio (this can go much higher on smaller properties unless you plan to self-manage), you're looking at a 7.5% CAP rate which isn't bad for a park in really good shape if you can get good lending terms and rate spread.

If it's maxed out currently at $67k per year, 40% expense ratio, you're dropping to a 5% CAP. Obviously, we don't know your deal criteria and that may be a great deal in your book, but the price seems high to me as it sits today unless you can get the terms you need to make it work.

How much upside do you have in the rents? Any of the big MSAs in TN will have lot rents much higher than that. I can only speak to Chattanooga, but we're currently in the $250 - $375 range depending on how far you are from downtown. That alone may change all of the dynamics of the deal.

Asked to see his tax records for the last two years. If he says that's personal, bull!! it's a business. I learn people don't like to show their tax returns because if they're going to tell a fib it'll show On the tax returns. You are buying what's there not what could be. If you don't understand what a tax return cows you take it to an accountant or CPA it's still early with that business. I really like that you said it's a 7 1/2% cap rate is good and I saw the same thing and self storage that they work on a 7 1/2% Cap rate. Not me. Rentals run 10 to 15% and every year you on the Rate increases it's just a math thing so why go for the low cap rate

7.5% can be good, but it depends on the asset and the lending you can get. A 7.5% CAP with debt at 6.5% wouldn't be a good deal for most! You can likely do better, but to your point, it's just math. The asset can cover itself or it can't. That's where I try to start with heavy value add properties. Sometimes it price, sometimes it terms that get you to the starting gate.

The nice thing about MHPs and infill is that you increase your base on the park, ramp up leverage per new home, and bring in homes that either sell for cash or cover their own expense without having to come too far out of pocket. On a reasonable timeline with some scale, you could add units from cash flow and snowball up your park value and cash flow.

City water/sewer is definitely preferred as this can be billed back to residents on a usage basis. Septic isn't terrible but get all of the tanks inspected and just plan to have a rotation schedule to pump them. Average a few contractor recommendations to get a good interval based on tank size and number of units on each tank. Roll that into lot rent or charge it back as an assessment. Its a little more to manage but greatly reduces your competition who write these systems off.

We're problem solvers. The more problems you have the tools to fix, the better your potential for success.

Hi @Brahan Gamarra .  You've got some great feedback here. Any progress on your end?  I would not do this until you do the live or home study course from Frank Rolfe.  And be careful of the private septic. 

Hey guys,

Thank you all for the helpful information. I am still in communication with MHP owner and will be following up with him to see if we can work a deal. His asking price is way too high. I am also doing research on just learning more about MHPs in general. Will keep everyone posted.

Thank you for all the help. 

@Brahan Gamarra Be careful with those septic tanks. If they fail I've seen municipalities leverage the permit process to essentially close the park. Imagine if the permit cost was 50k. If the park isn't wanted by the city/county, this is one way to be rid of it.

All thoughtful and spot on advice.  Thank you all generally, and thank you specifically, Kent. . . .learned me something there.  Never thought of that gambit.

My 0.2 definitely drill down on the due diligence, and find a mentor here.  Frank and company are GREAT, tho' there is nothing like having experience on speed dial (I might be looking for that in the near future also.  

Finally, everyone. . .bookmark this:

I’m assuming the 100K includes both lot rent and rent for the POHs? I believe the correct way to value a MHP is through lot rent, so cap rate is somewhere around 67,200 / 800,000 * 60% (guessing 40% overhead) = ~5%.   Too low for a park of this size IMO.