mobile home park 1.6mil deal?

Question

Have found a man retiring and selling his mobile home park for 1.6 mil, 39 units 100%paying and occupied grossing 186k with expenses 67500. He's seller financing with 30% dn.

If i have this right, that is a13% return, if he holds for thirty years. .. and how would i use this information to look for local investors and create a deal that still leaves money for me as being a party of only a small part of the investment.

Thoughts from any on how to wrestle this into an asset would be great.

Adam Johnson · Answer

I own one park and I am looking for more.  I'm going to be blunt, but don't be offended, that isn't my intent.  Before I even picked up a calculator to "check" the numbers, my brain was running from this one.  If the Net Income Before Debt service is $ 117,500 and you are thinking about paying $ 1.6 million, my advice is find the closest garbage can.  That makes this a 7.3 CAP rate, which, in my opinion, is crazy for this size park.  I am a huge fan of owner and creative financing, and even then this doesn't catch my eye.

39 pads is a small park.  When you go to sell it down the road, it will appeal to small buyers, and less of them, than say a park with 100+ pads.  The REIT's are snapping parks up right now, but many of them are several hundred lots (or more) and THEY might be looking at a 7 CAP, but I highly doubt they would consider this size park, especially at that valuation.

This size park is tricky to manage - too big to be small, but too small to be big.  If you plan to self-manage, that helps, but you also need to consider the eventual sale (even if it is 20 years from now).   The buyer you eventually sell this to is going to ask the same question - how do I manage this?  If they are considering hiring a manager instead of self-managing, they may be less interested or interested at a lower price.

I don't think I can help you try to find a deal here because I don't see anything really to work with unless the ask/offer price was divided by at least 2 and possibly more.  Wholesaling the deal doesn't make any sense either in my opinion, I don't think you could flip the deal.

The only thing I can suggest is going back to the seller and simply saying you've run quick numbers and you just don't see any way to make it work for even close to his number.  Ask him to walk you through HIS idea to show you how it might work.  Bring his scenario back here for discussion and maybe we can help fine tune it for you.

I look at this size park on a pretty regular basis, they are fairly common around me.  It isn't the size that pushes me away, it is the totality of the offering, I just don't see any way for this to be a money-making investment.

Adam Johnson · Answer

Jay brings up an important detail that I skipped over.  Well water and/or septic generally lower the price point too.  My park is well and septic, but I take for granted that my background is underground utilities/commercial site work.  I can say that I bought my park at a discount knowing these systems needed extensive work.  My park is also larger, so it can carry a full time maintenance/upgrade guy that tinkers with both systems almost daily.  He saves me tons of headaches because he simply handles the problems and saves me from having to hire out every repair.  That is a trickier balance with a smaller park and definitely something to consider.

Look closely at the age of the infrastructure too.  When I bought my park, they didn't show a lot for repairs...because they left a lot broken!  We have reduced our water consumption by 15,000 gallons per day, just by finding and fixing leaks.  That number is even higher because we increased occupancy by around 40%

Adam Johnson · Answer

Glad I could help.  I've learned lessons from nearly every deal that didn't close.  If nothing else, you will gain confidence talking with sellers and trying to put something together that makes sense.  If I had a dollar for every deal that I sent to the garbage can, I wouldn't have to set my alarm for tomorrow morning to get out there and keep trying myself!

Feel free to update with any new developments and best of luck!

Robert Shaw · Answer

Not enough information to assess. Are there park owned homes? Metered? Water? Paying mkt or below mkt rent?  Since it's 100% occ, how do you drive additional value?

Ash Patel · Answer

MHP's are a niche market where a lot of the players know each other.  It sounds like you have the makings of a potential wholesale deal.  I would reach out to Kevin Bupp who is big in this space.  If you aren't putting any money/sweat equity into the deal, I don't see many investors giving you equity.  You should get a finders fee if this turns out to be a good deal.

Jay Hinrichs · Answer

for me personally I would never buy a park that was not on city sewer and water I have owned a few parks over the years..   at least in our state were DEQ is a monster to work with if your systems fail

Ronald Wilson · Answer

@adam johnson thank you for that very "full" answer,  my gut was feeling much like this was a minimal purchase.  I was not sure if it was my lack of experience not letting me see the value, or the truth that it wasn't a true deal. I will try to give some respectful inquiry as to what might be done on the sellers part to paint a better picture. I truly appreciate the details you've shared

Ronald Wilson · Answer

I know they are all septic, which is park exp and tied into the figure. . I well ask about the water and other amenities if i find someone might be interested in it from here. Any more questions that i might need to ask, please come in

Ronald Wilson · Answer

I'm sorry the wording on expenses might be confusing, 67,500 is the expense,  so 117,500 is the net currently.  Notification was sent out for a rent increase of $25 each unit starting May. And he is allowing a 30 yr contract. ..Still seems real tight, with not much room to go up other than rent add itins later.  Wholesale is interesting, though i have never done one. .

mobile home park 1.6mil deal?

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