I'm drafting some purchase criteria to send to a few MHP specialist brokers for a good first deal. Here is what I have:
- Targeting 1 to 6 units with lot rents averaging less than $400 per space
- Vacancy rate between 65% to 90%
- Lot rent cap rate is above 10% (actual, not pro-forma)
- Bonus if the seller will partially owner finance.
- No geographic preference.
This is my "initial filter" criteria. I would then grade the MHP based on area/tenant base, look at ownership of roads, metering, and all the other important DD stuff mentioned elsewhere.
I think the above criteria puts my max deal size at around $288,000 or so. Listings trying to add revenues from park owned homes and other sources would ask for more so I might cap the max asking price to $300,000 to help filter them out.
Would you guys add or amend anything on my list or does it look good as is? My goal is to not get wrecked on this first deal, have a decent cash flowing park, and begin the process of accumulating enough cash and equity to get into a bigger one. My end goal is a somewhat modest $4,000/month cash flow.
*PS: I'm out of the country half the year so I don't have any local market advantage.
I've never asked but I can't imagine the MHP brokers bother with parks that small. There are very few i can even think of that are that size. If you really want small I would up your size to <20 pads. A 2 or 3 pad "park" (loose use of the term) would probably be listed on the residential MLS, not a commercial listing service.
Personally, I'd also take into account the type of water/sewer system. Typically, city water and sewer is the easiest to work with. When you start running a lot of park deals you see a lot of variations with parks on well water, septics, treatment plants, etc.
I'd also take into consideration the utilities. Are they submetered? Is the owner paying all the utilities? I know with our first MHP we purchased a park and are submetering everything so tenants will be responsible.
I would stretch the number of homes in your park as well. There are parks that small out there but that market is very very small. I think with your price point you might be able to scoop some parks between 5-30 pads depending on the area and park condition.
This is a great start! Good luck
@Gary Clisele. Congrats on thinking ahead! I think you are thinking about this right, but as others said, I would bump up the size and look for owner financing to make up any financial shortfall you may have. Here are 3 criteria I would consider:
(1) Within 5 miles of a Super Walmart.
(2) Public utilities.
(3) Town of 5,000 or more.
@Gary Dezoysa I would agree that you should bump up the number of pads. If you are just starting out and want to limit the sales price, I can understand that, but just know that it is the same amount of work to own a 6 space park as it is to own a 20 space park.
Also, as mentioned above, brokers will not likely spend a lot of time chasing smaller parks so another strategy you may want to pursue is to choose the area you would like to buy your first park in and find a hungry realtor or wholesaler who would be willing to drum up some deals for you, instead of a MHP broker. Their local knowledge and hunger will likely turn up a deal faster than a national or regional MHP broker.