Mobile home park- small - how to value it?

Question

Help! I want to give mobile home parks a try. I already buy land and set up new mh to sell.. but trying to get into this.

Off market-

8 lots

0.25 acres each.

6 lots have 1980s mh on them (3 bed)1 lot is rented (camper)

1 vacant lot —-

All 8 have pads, septic, water meters, and electric meters in place sewer at the street… (small industrial/commercial area)

$600 per mh but they are shot.

Not sure how to value you it. A random agent told the guy $200k all day 3 years ago but my numbers show $165k max max…

(I am also a mh dealer in the area so I could do brand new homes for $60k-70k each- set up/delivered) 🤔 could even owner finance the existing homes for $5k down and $15k loan - 18% interest… 5 year term (300 lot rent and around 350 payment so their “payment” each month wouldn’t be much higher than their rents …then maybe I could turn the park over in 5 years when those terms end (or as pple leave..etc)

I own a few rentals but 6x600x12 doesn’t sound bad with a 200k investment but 🤷‍♂️…

Chase Louderback · Answer

The sewer to fall back on can be a great plus.  Have you checked how much it is to connect to sewer?

It sounds like they are all POH so we would look at the lot rent value as the only capitalized portion and then add a shell value for the homes (which sounds like that is very low). Assuming your $300 value is correct then it would be $300 x 7 (assuming camper lot is similar value) x expense ratio of 0.6% x 12 = $15,120 NOI on Lot Rent Only.

9-12% cap rate would be reasonable for something of this size so $150k-$170k + the shell value of the homes. We look more at the back end equity and cash on cash return so if there is a lot of upside then it may make sense to offer more.  However, for the small deals, they rarely do.

If their is a lot of rehab on the homes or some essentially need to be thrown away, then that needs to be taken into account for the offer price as well since it's a detriment.  You mentioned it could be rezoned and land is going for way more in that area, so there may be the opportunity to hold onto it for awhile and then sell it to a developer later down the road if your area is growing.

Andrew Barrett · Answer

and worst case I rezone it to what all the surrounding lots are and it’s probably worth 3x.. or it might work for townhomes/multi fam in the long run 🤷‍♂️ definitely doing my dd on it. Environmental health indicated that the septic tanks are 4/6 1987 and 2/6 2001 but there is sewer to fall back on

Ben Firstenberg · Answer

For this, even though it's on the smaller side, I'd still use a cap rate.

Rough numbers: $600/unit/month income --> $450/unit/month after expenses (?) * 6 units * 12 months = $32,400 NOI.

Given this is a mobile home park, I think a cap rate around 8-12% is fair. Depends a lot on the condition and location. So value of around... $270k-400k.

I'm curious how you're calculating $165k. But if this property is available for 200 I'd be really interested. If you don't buy it maybe I will!