Mobile Home Park Valuation

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Found a 38 lot park that has been totally run down. Basically 0 income. 38 lots with water and sewer. All the homes will need to be removed and the roads re-scraped. My idea is to buy new mobile homes a few at a time, get them rented, buy a few more etc etc, How do I evaluate what the lots are worth without any income?

@Martin Molloy

This is a hard question for folks with a lot of MHP experience.

First thing I would do is see at what price the project makes sense.

You'll have to add up the costs(Home removal, road re pavings, water and sewer inspection/repairs, connection upgrades, tree trimming, home purchases, OpEx, CapEx ect) and compare that you your expected cash inflows ( from either selling the homes and collecting lot rent or renting out the homes. The park won't be up and running day one, so you'll have to do an NPV model to take into account time value of money. Then you solve for the purchase price that meets your return requirements.

After that I'd look at what raw land sells for in your area to get an idea of the baseline, since this is basically raw land with some improvements, but some detractors (the derelict homes).

Finally I'd compare the raw land value to the max you'd be willing to pay and see if they are even close to each other. If so, make an offer.

Going off of gut instinct, I'd be willing to bet that you'll find this deal won't pencil in step 1. The time and cost of bringing in new MHs is simply to great. If you need to infill 30 pads, it will take you 3-5 years and will take $6ook+ in capital for the homes along, never mind the working capital needed to run the park, and the cash needed for CapEx.

My SWAG on liquid funds needed to pull this off: $2-4m. No bank will loan on this so you'll have to get the money from other properties, investors, or under your mattress.

Good Luck

Originally posted by @Bill F. :

@Martin Molloy

This is a hard question for folks with a lot of MHP experience.

First thing I would do is see at what price the project makes sense.

You'll have to add up the costs(Home removal, road re pavings, water and sewer inspection/repairs, connection upgrades, tree trimming, home purchases, OpEx, CapEx ect) and compare that you your expected cash inflows ( from either selling the homes and collecting lot rent or renting out the homes. The park won't be up and running day one, so you'll have to do an NPV model to take into account time value of money. Then you solve for the purchase price that meets your return requirements.

After that I'd look at what raw land sells for in your area to get an idea of the baseline, since this is basically raw land with some improvements, but some detractors (the derelict homes).

Finally I'd compare the raw land value to the max you'd be willing to pay and see if they are even close to each other. If so, make an offer.

Going off of gut instinct, I'd be willing to bet that you'll find this deal won't pencil in step 1. The time and cost of bringing in new MHs is simply to great. If you need to infill 30 pads, it will take you 3-5 years and will take $6ook+ in capital for the homes along, never mind the working capital needed to run the park, and the cash needed for CapEx.

My SWAG on liquid funds needed to pull this off: $2-4m. No bank will loan on this so you'll have to get the money from other properties, investors, or under your mattress.

Good Luck

there is a reason you see virtually no NEW parks being built.. absorption rates kills ya.. 

 

@Jay Hinrichs yep and the fact that there are no financing options for large scale MH purchases like OP wants to do. Clayton has there CASH program, but its still kinda small and not super user friendly.

My buddy worked at a large RE PE shop and they had picked up 4,000 or so pads as part of a few NPL bundles from banks. They had to clean out the deadwood, get rid of the meth trailers and then infill; standard fare.

He calls up a few manufactures and is looking to get a long term contract to buy like 100 homes for a few of their parks. He finds one he likes but is told they don't do that he'd have to order each individually, when they were ready they needed half down, they'd deliver, and the balance was due in 15 days. He agrees, has his intern sit down for like two days doing the 100 individual orders and all is good once once he has the invoice numbers to his accounting dept. Up until one day he gets an angry call saying 'you haven't paid us for that MH we delivered we are stopping all your orders'. He apologizes and asks how far past due and the balance. 17 days (which is really 2 days since there terms are 15 days past deliver) and they owe $60k. My buddy is shocked. He works for a multi billion dollar hedge fund that operates thousands of pads, but they are going to spike the orders of 2 days and $60k... That is the industry I guess.

I think there is a nice little business to be had supplying just park owners with homes at scale and financing them in a more attractive way.

Originally posted by @Bill F. :

@Jay Hinrichs yep and the fact that there are no financing options for large scale MH purchases like OP wants to do. Clayton has there CASH program, but its still kinda small and not super user friendly.

My buddy worked at a large RE PE shop and they had picked up 4,000 or so pads as part of a few NPL bundles from banks. They had to clean out the deadwood, get rid of the meth trailers and then infill; standard fare.

He calls up a few manufactures and is looking to get a long term contract to buy like 100 homes for a few of their parks. He finds one he likes but is told they don't do that he'd have to order each individually, when they were ready they needed half down, they'd deliver, and the balance was due in 15 days. He agrees, has his intern sit down for like two days doing the 100 individual orders and all is good once once he has the invoice numbers to his accounting dept. Up until one day he gets an angry call saying 'you haven't paid us for that MH we delivered we are stopping all your orders'. He apologizes and asks how far past due and the balance. 17 days (which is really 2 days since there terms are 15 days past deliver) and they owe $60k. My buddy is shocked. He works for a multi billion dollar hedge fund that operates thousands of pads, but they are going to spike the orders of 2 days and $60k... That is the industry I guess.

I think there is a nice little business to be had supplying just park owners with homes at scale and financing them in a more attractive way.

well one way maybe you set it up like the airlines.. their are monsters leasing companies that actually own the jets and the airlines lease them from them.

 

@Bill F. and @Jay Hinrichs are spot on with their comments above.  A project like this one potentially could be worse than buying vacant land.  The only item of value to a MHP buyer would be the zoning, if it has not already expired.  Overpaying for a park that is performing would make more sense. 

IMHO, there are way better opportunities in acquiring a value-add park than taking on a project like this one. 

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