Mobile home park Deal or no Deal?

Mobile Home Park Investing
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Mobile home park Deal or no Deal?

Daniel Brown
Specialist · Baltimore, MD · Member since 2018 · 130 posts · 100 votes

Good morning BiggerPockets! I find myself needing some direction. Ive focused on Self Storage and MFH over the last year or so. So to my surprise, when one of my letters was responded too for the sale of a MHP instead of Storage. I thought I’d entertain the idea because who doesn’t like a deal in any space of real estate right? So speaking with the seller here’s what we have.

46 pads

22 homes 

13 rented 

Lot rent is 200 a month 

The park is city sewer and water.

Tenants that are currently renting do pay their own utilities. 

The park was built in 1976.

The price she wants to sell at is 385k. She will not budge off the price. Demographics in the area are solid. Population growth is stable. Median income is around 52k a year.  More than one employer in the area. 

This park is very mom and pop run. She currently does all the financials on a note pad. No P&L or rent roll. No advertising. Park itself is in pretty good shape and right now the street from a couple schools. 

My questions for all you savvy MHP investors is this:

1. Is this a potential deal?

2. How would I fill up those empty spaces?

3. Can this be ran remotely? 

Thank you in advance!!

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Frank Rolfe
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
5y

13 occupied lots x $200 x 12 x .5 = $15,600 which will obviously not even remotely cover the mortgage. However, if you were to fill it to 46 x $200 x 12 x .6 = $66,240 and could sell it at an 8.5% cap rate at that point = $779,294. So you can't say that the deal does not have potential, but you have to address the realities:

1) The seller will HAVE to carry the financing -- no bank will touch this.

2) The seller will have to structure the note to match the park's cash flow, which means low rate interest only in the early years, and probably zero down since you need the capital to make repairs.

3) To make sense of this deal, you'll need to do market comps and the lot rent in the market needs to be around $300 to give it the extra value boost you need to make it compelling.

In these type of "heavy lift" turn-around deals the seller is going to have to be an active participant in the way it is structured. If they think this is going to be an all-cash, bank financed deal, they're crazy.

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  • Frank Rolfe
    Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
    5y

    13 occupied lots x $200 x 12 x .5 = $15,600 which will obviously not even remotely cover the mortgage. However, if you were to fill it to 46 x $200 x 12 x .6 = $66,240 and could sell it at an 8.5% cap rate at that point = $779,294. So you can't say that the deal does not have potential, but you have to address the realities:

    1) The seller will HAVE to carry the financing -- no bank will touch this.

    2) The seller will have to structure the note to match the park's cash flow, which means low rate interest only in the early years, and probably zero down since you need the capital to make repairs.

    3) To make sense of this deal, you'll need to do market comps and the lot rent in the market needs to be around $300 to give it the extra value boost you need to make it compelling.

    In these type of "heavy lift" turn-around deals the seller is going to have to be an active participant in the way it is structured. If they think this is going to be an all-cash, bank financed deal, they're crazy.

    4Reply
  • Daniel Brown
    OP
    Specialist · Baltimore, MD · Member since 2018 · 130 posts · 100 votes
    5y
    Originally posted by @Frank Rolfe:

    13 occupied lots x $200 x 12 x .5 = $15,600 which will obviously not even remotely cover the mortgage. However, if you were to fill it to 46 x $200 x 12 x .6 = $66,240 and could sell it at an 8.5% cap rate at that point = $779,294. So you can't say that the deal does not have potential, but you have to address the realities:

    1) The seller will HAVE to carry the financing -- no bank will touch this.

    2) The seller will have to structure the note to match the park's cash flow, which means low rate interest only in the early years, and probably zero down since you need the capital to make repairs.

    3) To make sense of this deal, you'll need to do market comps and the lot rent in the market needs to be around $300 to give it the extra value boost you need to make it compelling.

    In these type of "heavy lift" turn-around deals the seller is going to have to be an active participant in the way it is structured. If they think this is going to be an all-cash, bank financed deal, they're crazy.

    The Man, myth and legend himself! Thank you for responding. I really appreciate it. You articulated exactly what I was thinking. I was afraid of bringing all cash to the table due to the amount of work that needs to be done to the park. 

    She has expressed that she can’t do any kind of seller financing due to the loans she has on the property. I was thinking about partnering up with her to turn around the park and then refinancing her out of the property once it made financial sense. Not sure if I could do that.

    Also, how would someone go about filling those pads up? I know homes and hook ups can be pretty costly. Thank you again for responding!

    0Reply
  • Frank Rolfe
    Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
    5y

    You could do a Master Lease with Option deal, but that won't work when the turn-around is based on filling lots as you can't get accepted into the CASH program from 21st unless you are the park owner. All you can do under a Master Lease is to raise rent, billback utilities and cut costs -- which I don't think is going to be enough to get the job done.

    If the seller already has debt -- and agrees with this strategy -- you could see if you could assume their existing mortgage and have the seller carry the rest at zero down.

    Or you can wait for the owner to default and then buy the park from the bank.

    1Reply
  • Daniel Brown
    OP
    Specialist · Baltimore, MD · Member since 2018 · 130 posts · 100 votes
    5y
    Originally posted by @Frank Rolfe:

    You could do a Master Lease with Option deal, but that won't work when the turn-around is based on filling lots as you can't get accepted into the CASH program from 21st unless you are the park owner. All you can do under a Master Lease is to raise rent, billback utilities and cut costs -- which I don't think is going to be enough to get the job done.

    If the seller already has debt -- and agrees with this strategy -- you could see if you could assume their existing mortgage and have the seller carry the rest at zero down.

    Or you can wait for the owner to default and then buy the park from the bank.

    That’s a great idea about assuming the loan! I’ll have discuss with her to see if that’s even an option she wants to try.

    As for the Cash program with 21st, do they work with first time park owners? Or do you have any references I could look at so I don’t bombard you with questions. I really appreciate you taking the time to answer. 

    Side note. Love your podcast!
     

    0Reply
  • Frank Rolfe
    Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
    5y

    21st will work with first-time park buyers if they 1) have at least 10 vacant lots 2) you have the necessary credit to be approved into their system. Only they can answer that, so when you have a park under contract you should call them and get more information.

    You can find all of my writings and recordings at MobileHomeUniversity -- hundreds of hours worth.

    I'm glad you like the podcasts -- I put a lot of work into those.

    4Reply
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