Mobile Home Park deal! Need experts!

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There is a mobile home park for sale in my town listed for $194,500. This deal is land only. All the mobile homes are tenant owned. It is currently set up for 9 spaces, but with a couple adjustments, it can have 12 spaces. Each space has utility hook ups. Water and sewer are all on one meter and paid by owner. Gas and electric are separate.

Anyone have some insight on the numbers on this deal? If lot rents are in the $300-$400 range and there is room for 12 homes, are we looking at something interesting? I would love to discuss this and look at partnering on this del if it makes sense??

That's an interesting deal. Especially at that price for just the land. With the current 9 spaces are they full? If so that's go ou d money flowing in and you rather just have the land without headaches. May want to converse with the owner on amount he pays out for gas, electricity, water and sewer. Knowing the cap rate can help the perspective as well. @john fedro may can help. 

Hi Clinton, 

Great job finding or attracting this potential mobile home park opportunity. Ideally this park is currently off market and not really being advertised well anywhere. Smart thinking posting it here to get the opinions of other investors in the group. 

While I have been investing in individual mobile homes for a couple decades, my experience purchasing parks is only a fraction of that time. I mention this because there are certainly other folks in the group that have been investing in parks for decades and that are great teachers of park investing. 

This certainly does not sound like the biggest deal of all-time. If you do purchase this park and get it running to 100% would your exit strategy be to refinance it or resell and move the money to bigger properties. I only mention this because the money used to purchase this property could be better spent on a bigger property with more potential. 

As mobile home park owners we make money a handful of ways. When we purchase a mobile home park we may increase the lot rent, fix vacant homes and rent or sell them, fill vacant lots with used or new mobile homes, billback utilities to residents, etc. 

In your original posting I am unsure if this is in a metro market or more of a rural type of area. However it does sound like water and sewer may be public utilities and master metered with the park paying the bill and possibly collecting from the residents. Additionally, I cannot determine if the lot rents are under value where they are or if the lot rents are at the current market rates. 

Since there are only 12 spaces or less, this part does not financially support a full-time manager at the property. There are likely minimal issues and if this is in your backyard then you may end up managing the property. 

Like I mentioned above, if this is in your backyard then a smaller park like this can definitely make more sense. However this is probably not something you would want to purchase and manage from states away. 

Depending on the current net operating income, the price does not seem crazy. However you would definitely want to know how easy it is to add those three extra spaces prior to moving forward. There is a lot of other due diligence to perform after a contract is signed. Lowering the price or having the seller agree to some type of seller financing would make the deal sweeter and allow you to have capital to bring in a few extra units. 

Hope this all helps and makes sense. I definitely do not know everything about mobile home parks, so I look forward to reading what others have to write and add about what I certainly may have missed. 

Thanks for the shout out, Howard. 

Keep in touch moving forward. If anyone has any follow-up questions never hesitate to reach out anytime. All the best.

I would think the first thing you would want to get are the actual income statements for the property for at least trailing 12 months so you can see exactly what the opex are.  And then go there and see what types of repairs may be necessary as well as what other income opportunities there may be (laundry, vending machines, storage, etc.).  A full grasp of revenue opportunities (including market rents, as others have mentioned) and cost burden, including taxes, insurance, permits, etc. is necessary to actually gauge the opportunity.  And then what are the financing options and costs.  Also, I do not know what vacancy rates/delinquency rates experienced MHPark operators typically use, but you'd want some wiggle room in your model for that.  Finally, what is the age/value/quality of the homes in the park.  You'd want to make sure they aren't so bad that the owners would just abandon them if things turned bad - not only would you lose the rent but you'd have to pay to get rid of the trailer.  

@Clinton Ide There is a quick "back of the napkin" formula to evaluate a park that will usually tell you if the deal is worth a closer look. The goal is to arrive at what the NOI is likely to be without having all the information from the seller, and then apply that against the market cap rate. All you need to know is the number of occupied spaces, the monthly lot rent amount at the park, and the cap rate.

Calculate the NOI by multiplying the number of occupied spaces by the monthly lot rent (lot rent ONLY) and then multiply by 12 months to arrive at the gross annual income.  

From there, subtract the expenses (they can range from 30-50%, so you'll want to use 40% for this quick evaluation). That will give you the net operating income. (NOI)

Once you have the NOI, divide the NOI by the market cap rate. So if the park is in a 7% cap market, you would divide the NOI by .07 and that would give you the ball park value of the park.

That evaluation is extremely generic and will only tell you if the price expectation from the seller is in range or not. If it is close, then it deserves a closer look. If it is way off, you will need to understand why.

There are cases where other income from utilities, laundry, a C-store, a restaurant, or something like that deserves additional evaluation, so make sure not to punt before you understand additional income.

Also, there are cases where the expenses will be higher, particularly in a park that has a large amenity package (like pools, clubhouses, sport courts, game rooms, etc), or a high degree of expense related to landscaping and maintenance.

Once you discover you are in the ball park, then it will be smart to determine where there is potential for upside. Is there an opportunity to improve the income, lower expenses, expand the number of spaces, etc.  

All the best,

Jack

@Clinton Ide That would likely be a deal worth pursuing in this market, as long as the location is good.  I will demonstrate the math, using $350 for lot rent. 

How to use the "back of the napkin" formula to determine the cap rate at the asking price:  

350 x 9lots x 12months = 37,800 x .6 (taking out 40% for expenses) = 22,680 (NOI) / 194,500 (asking price) = 11.66% cap rate

If the market cap rate for that area is 7%, then the real value of the property would be 324,000:

$350 for lot rent >> 350 x 9lots x 12months = 37,800 x .6 (taking out 40% for expenses) = 22,680 (NOI) / .07 (cap rate) = 324,000

@Jack Martin. That's good information. I was looking at a park in my area for sale. Although it has a commercial rental, which is a garage. It's good to know I can add that to the income amount to see if its actually worth it. That brings in more income for sure.