Mobile Home Park Deal - looking for advice

6 Replies

Good Afternoon BP Community!

I have a deal on a Mobile Home Park that I'm looking at, and wanted to get some more experienced eyes on the deal. I'm not looking for anything sugar coated, and welcome all the feedback that you can provide. The deal is as follows:

16 pads, 100% occupancy, all tenant owned homes. 

Advertised Cap rate is 12.5%, although that will change as I'll have to add management costs into the deal (estimating 8% of total annual rent for this, please let me know if it should be higher than this). 

Right now I'm looking at a 30 year commercial loan from a boutique lender at roughly 5.5% with 25% down. Total cost for the MHP is $600k, negotiated down from $650k. This changes the listed cap rate from before as well, but it is 12.2 now that I've added in management costs, as noted before. 

Gross income from the rent roll that I have is $101,200 annually, with a total NOI of $28,000, once I've accounted for all the existing costs plus management.

Park has well and septic (which I'm not a super big fan of).

There are no immediate CAPEX that I need to worry about at this time (that I'm aware of).

All tenants have been in the park for 5+ years.

In regards to future upside opportunity, the park currently pays water (from the well) and trash for the park. Some of these could potentially be billed back to the tenants. Some pad rents are also below market rent, these could potentially be raised moving forward. Additionally, there is a pad that is utilized for storage that is not listed in the rent rolls that could have a MH added for one more pad's worth of monthly income. 

Is there anything that I'm missing, should be looking for, or is a red flag for anyone overall?

Thanks for the feedback!

-Ryan

Paul,

All MH's are tenant owned, the park owns none of them. The rents vary from 400 at the lowest to 660 at the highest. The average rent between all 16 homes is $527.00/mo.

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Hey @Ryan Mitchell , welcome to the BP community!

I'm not quite understanding where you're getting a 12 cap from. If you purchase at $600k and the NOI is only $28k, you'd be at under a 5 cap. Also, if you do a quick Frank & Dave Calculation, you're at about $500k at a 10 cap (just based on lot rent, # homes & who pays water).

Without diving into this too much, I think your biggest issue is likely the current valuation. 

You will also want to be sure to do your proper due diligence on the private utilities. There's no way for you to know of any issues there until you look into it. Also, having public lines nearby is always a big plus just in case you need to tie in. 

If you get the valuation right and do your proper due diligence, this appears to be a nice opportunity. It's already filled with a little upside. Plus, you can realize some immediate upsize by greatly reducing expenses (shouldn't be much more than 40% for a park like this).

Hope this helps a bit! Please, feel free to reach out anytime if you have other questions or just want to chat MHP!

5.5% seems like a very high rate— I’ve seen 3.5% or less for 30 years and 25% down at several local banks. If you’re in the New England area feel free to PM me with any questions, I have a few parks in the area. 

Brendan, thanks for pointing out the NOI. That is my mistake - of course I mis-typed the number that is the most important part of the calculation! 28,000 is the expenses, not the NOI. Not sure how I managed to mess that one up. The NOI for the property is 73,000.