I have found a 5 trailer mobile home park in Georgia. Its an hour from where I live. Seller is asking for $199,900. She will not seller finance or owner finance. She told me she is selling because she just bought apartments in Anderson SC (400 doors) and wont have time to manage the park anymore. All 5 lots are rented. All trailers are very well taken care of. Gross monthly rental income is $2925 annual is $35,100. 100% occupied. There is also room for 1 more trailer. My problem is I can not find a local bank that will finance a mobile home park. I also do not have 20% down payment. Any creative suggestions?
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
5y
It's a good thing you can't find a bank because that is a terrible deal. You are analyzing this deal incorrectly. Mobile home parks only have the land rental (real property) income to consider NOT the mobile home income. Assuming the lot rent is $200 per month, that would make the property only worth $200 x 5 x 12 x 50% = $6,000 net income which, at a 10% cap rate, is worth around $60,000. But even then, that's assuming the property is 100% perfect and needs no cap-x.
This seller is trying to sell the mobile home park as a "detached apartment building" which sounds good in theory but no bank is going to agree with it if they know what they're doing. Mobile homes are "personal property" and not "real property" so their income does not count to the bank.
If you want to buy a 5 unit apartment complex for $199,000, then you can find a bank for it, but you MUST use only the LOT RENT in all future calculations on mobile home parks.
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
5y
It's a good thing you can't find a bank because that is a terrible deal. You are analyzing this deal incorrectly. Mobile home parks only have the land rental (real property) income to consider NOT the mobile home income. Assuming the lot rent is $200 per month, that would make the property only worth $200 x 5 x 12 x 50% = $6,000 net income which, at a 10% cap rate, is worth around $60,000. But even then, that's assuming the property is 100% perfect and needs no cap-x.
This seller is trying to sell the mobile home park as a "detached apartment building" which sounds good in theory but no bank is going to agree with it if they know what they're doing. Mobile homes are "personal property" and not "real property" so their income does not count to the bank.
If you want to buy a 5 unit apartment complex for $199,000, then you can find a bank for it, but you MUST use only the LOT RENT in all future calculations on mobile home parks.
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
5y
Does the park own the trailers or are they owned by the occupants? If it includes the trailers, that may make a difference but keep in mind old trailers have very low intrinsic value. ie, if you wanted them, gone, you would probably have to pay to have them removed. Also, most mobile home parks supply water, sewer, garbage and some facilities maintenance as there's roads, etc that have to be kept up. There's probably also some common area lighting that the park operator pays for. $200 seems low for lot rental.
Is there growth happening around the area? ie, does the land have any potential value?
Overall, I agree with the above poster that this doesn't sound like a deal.
Specialist · Indianapolis, IN · Member since 2014 · 670 posts · 352 votes
5y
@Frank Rolfe hit the nail on the head here. Run from this park! I would spend some time on learning how to properly analyze mobile home parks and that will help in providing more clarity on your next opportunity.
Hello Frank, could you walk me through how you came up with those numbers. multiplying your yearly gross income by 50% (above example 200 x 5 x 12 x 50% = $6,000) is that including debt service and expenses? Basically just a quick way to analyze the deal prior to further digging in? I've been having a hard time figuring out the "true value" of mobile home parks as well.
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
5y
$200 [estimated lot rent] x 5 occupied lots x 12 months x 50% expense ratio = $6,000 net income estimate.
This does not include any debt service whatsoever.
However, 50% is not the normal expense ratio of a mobile home park -- it's only used when the park is small (under 20 lots).
The normal expense ratio is 40% if the park pays the residents' water and sewer and 30% of the residents pay their own via submeters, RUBS or CAMS. In rare situations it can drop to 25% but only in those cases where the city owns all utility lines and streets and bills the residents direct.
Remember that all of these are basic guidelines that are shared by park buyers, appraisers and banks.
The other huge item to remember is that YOU CAN ONLY COUNT REAL PROPERTY REVENUE. Mobile homes are PERSONAL PROPERTY and not real property, so only the lot rent can be counted.
If you want to approach mobile home parks as detached apartment complexes, you can do that and some have done so very successfully. I know a guy in Alabama that has built a family dynasty with a 150-space detached apartment mobile home park business model. But even he acknowledges that there is zero bank lending possible on this type of project (other than just the lot rent).
Hello Frank, could you walk me through how you came up with those numbers. multiplying your yearly gross income by 50% (above example 200 x 5 x 12 x 50% = $6,000) is that including debt service and expenses? Basically just a quick way to analyze the deal prior to further digging in? I've been having a hard time figuring out the "true value" of mobile home parks as well.
Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
5y
@Brandon Anderson, you likely know this, but the basic formula @Frank Rolfe is working off is Value = Net Operating Income ÷ Cap Rate. This formula works for all commercial real estate. This article may be helpful. Good luck!
It's a good thing you can't find a bank because that is a terrible deal. You are analyzing this deal incorrectly. Mobile home parks only have the land rental (real property) income to consider NOT the mobile home income. Assuming the lot rent is $200 per month, that would make the property only worth $200 x 5 x 12 x 50% = $6,000 net income which, at a 10% cap rate, is worth around $60,000. But even then, that's assuming the property is 100% perfect and needs no cap-x.
This seller is trying to sell the mobile home park as a "detached apartment building" which sounds good in theory but no bank is going to agree with it if they know what they're doing. Mobile homes are "personal property" and not "real property" so their income does not count to the bank.
If you want to buy a 5 unit apartment complex for $199,000, then you can find a bank for it, but you MUST use only the LOT RENT in all future calculations on mobile home parks.
Just trying to keep you out of trouble.
Unfortunately, I am running into the same problems. These banks dont see the value of the fully operating MHP, which is a major flaw. The cash-flow of MHPs obliterates many other types of residential investment. They are so quick to loan on that shiny 8-plex apartment building, even if it only generates $75/door positive CF or say, the DSCR barely above 1.0.
But, I understand why. If they have to take it back through foreclosure, they want to be holding the shiny (apartments) object (even though the returns on the MHP would obliterate that apartment building).
If a bank opened that specialized in this asset type, they would own the niche.
Summerville, SC · Member since 2018 · 588 posts · 252 votes
5y
Failing to count the home revenue is a major flaw, guys. Basically, on appraisal, banks need to view the "Income approach". Not sure why they can't (or should I say, they dont want to)
No different than telling a doc with a practice they will only loan her/him on the value of the building, and will assess no credit for the thriving practice that generates hundreds of thousands in revenue per year! (I have a healthcare background). Its ludicrous! Sounds like negative stigma of the MHP gets the best of them.
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
5y
The reason you can't count the home rent is that it is not "real property" income, but instead "personal property" income. Only the lot rent and other "real property" can be counted. The only way you can count the mobile homes as "real property" is to follow the state's rules to convert a mobile home to a permanent structure which normally entails surrendering the title and singing documents warranting that the home is "permanently affixed".
This rule of "real property" vs. "personal property" by banks existed well before I got in the business 25 years ago. The only exception are small, local banks. But everyone that does $1 million loans up sticks with this rule that I know. CMBS and Fannie/Freddie will definitely not count home income but only lot rent.
There was one bank that did count home rent years ago which was Jim Clayton's "Clayton Bank" of Knoxville, TN. Not sure if they are still doing that or not.
Investor · Washington, DC · Member since 2018 · 7 posts · 4 votes
4y
@Frank Rolfe - So - in the case of the $199,000 for 5 POH, I see you state that it is a terrible deal. I think it is expensive at $40K per pad, but let's say that it was $120,000, so $24K per trailer. If the Rents are $600, which is 2.45% Rent to Price (I did some quick math so hope the numbers add up), would you still consider it a poor deal, if it is a decent park with reasonable tenants? I understand the financing issue, but this still generates great cashflow as a performing property? Are you only purchasing TOH parks, or converting them? My group owns parks and we have a mix of TOH and POH, so trying to learn.
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
4y
We convert mobile home park POHs to TOHs all the time. One advantage of a POH at purchase is that you can change the amount of lot rent vs. home rent immediately without any pushback from the resident as they only care about the total of the two, and even if you increase the lot rent astronomically above what mom and pop has on the TOHs, it's still cheaper to the POH resident than what they were paying. It might take you years to raise the lot rent on TOHs to market levels, whereas you might be able to get there immediately with a POH.
The important issue is simply to only count the lot rent (real property income) when doing your calculations. That's not to say you can't buy a park with POHs and do great, just you can only count the lot rent from those POHs and assume that you will sell them off -- or give them away -- as fast as you can after purchase. Most park owners call this a "conversion" when you convert a renter into an owner.
The business model always works best when the resident is an owner and therefore stakeholder in the business model. They own the home and you own the land. That's the correct model all park owners work towards.
Real Estate Consultant · Norfolk, VA · Member since 2017 · 345 posts · 201 votes
4y
@Frank Rolfe First of all, thank you for sharing your knowleger here and in your podcast, I've been listening to them in the past couple of weeks and learning a lot.
I am using the same formula you provided when analyzing or making an offer on MHP, but instead of using lot rent, I use the actual NOI to come up with the as-is valuation. Then I make projections based on the assumption that POH with existing tenants will be kept as POH and all vacant POH will be sold. The park we are currently under contract has a market lot rent of $500 and POH are rented between $850-$1000. I'm thinking $400-$500 additional revenue for maybe $200-$300 expenses as POH will give me an extra $200 cash/unit if kept as POH. With this type of park, would you still analyze the park based on lot rent only? Will you still convert all homes to TOH in this case? If you will still convert to TOH, how do you come up with the price of the home?
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
4y
When you start using any home rental income, you start going down a dangerous path because virtually all appraisers and banks will not use this income in valuations. Then you're in a corner because you not only have to find a lender or buyer but one that is willing to count home rental income (which is rare).
Instead why not raise lot rents up to meet this $200 or so benefit in rental on each home? I would much rather not count any home rental income and instead swap that income for higher lot rents. You can re-set internally the lot rent on the rental homes with no pushback from the resident. For example, if you rent the home for $850, and the tenant-owned homes are at $350 lot rent, why not make the lot rent on those $850 homes $495 if the market supports that (even if you are pushing the envelope) at the time you sell them the home? And then raise the rent on the tenant-owned homes to $395 day one to make the numbers tie for the macro park?
I would much rather be extremely aggressive and creative on lot rent than home rent. One is in the mainstream of the lending world and the other brands your deal as being one-off and hard to finance.