Mobile home park opportunity. Is this a good deal?

Question

there is a 16 unit mobile home park that I am looking at. They are selling both the land with the mobile homes, and they are asking 590k. Currently they are paying the tenants water and electric bills which totals to approximately 18k a year from what they are telling me on the expense report. I would sub meter each property for both electric and water. at their asking price it is currently at a 10.3 cap. Expenses I am estimating at 50%, is that too high or too low for a mobile home park? Also, I understand that mobile homes are depreciating assets, so is it typical for investors to buy both the land and the homes and rent them out?

Furthermore, the average rent per unit is $630 a month. Each lease varies, and each lease is a week to week lease. In the area where I am located, I can get 6 month to 1 year leases on these homes. But is it typical for week to week leases in mobile home parks? I know I can get each unit to rent between 600-700 a month. I would be able to increase the NOI by decreasing expenses and raising rent

Thoughts on this deal?

Russ Wallace · Answer

Devan, it sounds as if you may want to investigate the property further before preparing a pro forma. For example, how did the owners arrive at their asking amount? What did other parks in the county sell for ($/developed pad, $/occupied pad) within the last 12-24 months and what were/are their rental rates? Do you have the last two years comprehensive operating statements for this property? When were the park owned homes manufactured? What is their interior/exterior condition? Is the county population growing? What is the average weekly wage and what monthly rental rate will it support? What do area mobile homes and c-class apts rent for? Do the tenants work for a variety of employers or the same one? Is the property close to more than one employment center?

Devan Mcclish · Answer

@Brandon Siewert that's one thing that is making me hesitant on this property is having to renegotiate all leases with the tenants.

@Jeremy Tillotson the park is post 1978. I'll definitely send you a pm if I decide to pursue it.

Brandon Siewert · Answer

I havent done all the math, but I agree w @DevanMcclish deferred maintenance could be an issue.  The upside with leases being week to week it gives you a lot of leverage to renew or get rid of leases to more favorable terms.  Could be a good opportunity but you need a good plan to turn it around or you'll be an employee for the park in no time.

Jeremy Tillotson · Answer

@Devan McclishI have done 2 mobile home park deals, and am waiting for the right opportunity to come by to do another one. Be concerned of the age of home (post 1974 is better) and maintenance is usually the killer I see. We basically redid all of our units 1-2 a month and made them into really nice places. I am going to look at a mobile home on land tomorrow. (1976 so yeah its old) Let me know if I can give advice or help you can pm or call me.

Devan Mcclish · Answer

@Jeremy Tillotson yes, I haven't seen the properties yet so I don't know how much deferred maintenance there is. I was looking at 5k a unit just as an assumption to run the numbers. Are you a mobile home park investor?

Joel Owens · Answer

My friends only buy about a 75 unit minimum and whole parks at a time. They do not deal in fractured parks as too much work and issues to deal with.

Moving utility onto tenant is one way to increase yield.

The week to week is because many tenants live hand to mouth and if you do not collect right away the money will be gone on booze or something else ( not rent).

Jeremy Tillotson · Answer

@Devan Mcclishwhile I am unlike most and I prefer park rentals, I think being advertised at a 10 cap makes it a loser when you figure the trailers probably have deferred maintenance. Most my deals have 15+ cap for me to take the time to look at. Most my deals are also turn around though. Let me know if I can help in anyway though.

Devan Mcclish · Answer

@Thomas Quinn yes it is city sewer and water

Thomas Quinn · Answer

Is it town sewer?