I flip in the Nashville area about 20 homes a year currently. In any-case once in a while I come across deals that are new to me. I have the opportunity to purchase 2 mobile home parks and I remember there were some investors here that have experience in evaluating those type of deals. Any help/direction would greatly be appreciated!
Real Estate Agent · Nashville, TN · Member since 2018 · 123 posts · 74 votes
6y
@Derk Cheetwood I'm a Realtor here in the Nashville market. I work primarily with investors around the country on properties throughout Middle TN. I've got a MHP that I'm the listing agent on in the Tullahoma area that is under contract. Would love to connect and discuss any questions you might have on the properties you found.
There are quite a few MHP investors here on BP and you can easily find the most active by searching "mobile home parks" or "MHP" then reading up on some of the discussions. In fact, I'm sure more than a few will stop by this thread sometime soon so how about you throw some questions up here. Maybe tell us a bit about the parks?
If you have absolutely no idea where to start with the underwriting, shoot me a message and I'd be happy to walk you through it and link you to some educational material!
Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
6y
@Derk Cheetwood To properly value a MHP or RV park requires a fairly deep understanding of how the park will operate, given all the potential variables. Some of those variables are the size of the park, number of vacant spaces, number of POHs, number of vacant POHs, number of MH spaces, number of RV spaces, the park amenities, landscaping and trees in the park, the age of the park, underground infrastructure age and condition, park location, size of the market, demand in the market, water or well, sewer or septic, other utility sources and whether or not they are direct billed, deferred maintenance, cost of management, and more.
However, there is a quick "back of the napkin" way 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, so if there are homes rented, only include the lot rent amount for each of those spaces) 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 you can take the time to gather information, perform a market study, and underwrite the deal.
Real Estate Agent · Nashville, TN · Member since 2018 · 123 posts · 74 votes
6y
@Derk Cheetwood I'm a Realtor here in the Nashville market. I work primarily with investors around the country on properties throughout Middle TN. I've got a MHP that I'm the listing agent on in the Tullahoma area that is under contract. Would love to connect and discuss any questions you might have on the properties you found.