Small Mobile Home Park

24 Replies

Hi,

I've invested a couple times for appreciation but now I'm wanting cash flow. This is new for me so any advice would be great. This is a very small mobile home park (4 homes and a building). The purchase price is $159K and the rents from the homes are $1750. The building would rent for $550 but is currently vacant (conservative).  Taxes and insurance should be about $1830 annually and a PM will be about 10% (hopefully less!). The owner will finance for $50K down with the balance at 5% over 10 years.

The park is across the country...I live in the SW and the park is in the SE. If I can do without PM I will but I'm factoring that price into the equation. I don't like purchasing across the country but I need to get out of our expensive state (California). Anybody have a small park far from your home?

What do you guys think?  Thanks so much for any advice!!!

Thanks Jassem! My gut told me to cross that one off so I appreciate your response. Hypothetically, if it had been a closer location and $150K would you have done it? I was thinking I would have, but would be interested if you agree. Thanks again!

I'm a Californian who manages/invests in the greater midwest.  Distance is not an issue, if you get educated first.   The key issues I see are:

1. You are not yet educated in the ways of mobile home parks.  They are quirky.  Managing from a distance is no issue after you've put in the time to get educated.

2. The SE is a particularly bad place to own any sort of residential property, especially MHPs.  The economy there is perennially weak (unless you are right in Atlanta or Nashville or one of the other large cities).

3. The price is not great.  Small parks trade at a discount (higher cap rate) to larger properties precisely because so few people want to 'mess' with a small park and that financing is difficult to come by.  My gut would tell me that $100k would be more fair value, and perhaps as little as $60k.  (It'll all depend on location and infrastructure).

Good luck,

-Jefferson-

Thanks for your response Jefferson! Yes, I am not educated in mobile homes and I initially thought starting small would be the way to become educated. I absolutely get what you're saying...starting small, far away is not a good recipe for getting an education! I checked out your site and I have a lot of reading and watching to do! Good stuff!

I had read that small MHP's are not the way to go and was going to research the reason-I appreciate your comments.

I also appreciate your comments on the area. I was concerned about the economy but thought that might be a plus for a MHP. 

 I was thinking of buying a home/land combo to dip my toe into mobile homes. I'll be reading and watching too! 

Thanks!

$159,000 for 4 mobile homes + building that only generates a gross of $2300 a month. I walk away from that in a heartbeat. At the same time if it is in Florida in a tropical area where the mobile home park is in like a resort set up then may it is worth it. But I doubt it would be only having 5 units.

There are so many variables that you didn't mention like who pays for water, sewage, trash etc... is it private water and sewage or city...

Seems like you are unsure about a lot of things. Spend at least 10 hours to educate yourself by looking at forums or reading a few books before you jump in. 

If you can figure it out MHPs can be a real cash cow.. If you can understand the whole operation and work closely with a good property manager it can work wonders.

@Kelly Bernhard

I've never purchased a MHP before so it would seem risky to me wherever it is.  I've also never purchased a property more than 45 min away from me because I am more hands-on with my rentals and I try to have very little vacancy.

Kelly, one of the first properties I bought was in Indiana and had 3 mobile homes on it. We bought it for about $16,000, but even that didn't stop the bleeding. We live in San Diego so each trip to Indiana ran me about $1,000. It was hard to find a good property manager for it and in the end we sold the property for a loss after one of our tenants burned down one of the trailers and badly damaged the other two. I could go on and on about this but you get the point.

I still have out-of-state rentals, but they are single family homes and are more predictable and come with fewer issues. I agree with the comments above about getting educated first on MHP's. I'd do that and then buy a larger park with an on-site manger. That's what I'm currently working on.

Thanks for the thoughts! I really appreciate them and I especially do not want to make a mistake in this market so I'll be getting educated for sure! The risk/reward seems much higher (agree with Jassem!) so it will be well worth it to know how this market works. Thanks for the info, Jefferson, and I will definitely look at this option.

Bruce May, that is an eye opening story and I appreciate it. I'm curious what your distance limits will be with a larger/on site managed park. I've found it's hard finding a good PM period, and finding a good PM working with this unique market may be more challenging (unless they're onsite, maybe). I would be interested if others find it more challenging to find a good off site PM for this market-harder than SFR's.

Hai Loc, thanks for your comments! The park is on the FL/AL border and it looks well kept, but not resort-like. The owner pays the water for and everything else is individually metered. I agree the price is too high for the return!

A few years ago I was with an agent looking at some SFR's and she had just purchased a mobile home park. I thought she was nuts to go into that market, and now here I am looking at it! Thanks again, all!

I think the key is to have an on-site property manager. The trick is to buy a park large enough where it makes sense to be able to compensate them for their work. I think you'll find MHP's are a very different animal and you'll need a manager that lives in the park who can be your eyes and ears as well as repairman and rent collector. They basically run the park for you.

Thanks for the comments Bruce and they totally make sense, especially if purchasing out of state. I wonder if mobile home parks and apartments are similar in the way they're run. I would prefer a MHP but I'm guessing they're similar, though I have no experience.

Shawn, I agree and would prefer 3-4 SFH's, but in my area that does not exist except possibly in places you wouldn't want to go near. Since I work I don't want to purchase a fixer out of state. Are the homes you're talking about in Indianapolis fixers?

My thought with the mobile homes is a house depreciates but the land appreciates. So I'm thinking as long as I purchase in a decent area with the numbers right, I'll have good cash flow and the land should increase in value. I would rather have mobiles in a good area than purchase around here in a bad area, though I realize there are more options.  I'd appreciate others opinions! Thanks!

I do not want to create a new topic in the forum because my question is related. I went to the MHU boot camp and I understand why 30+ units park makes sense. However, does it make sense to buy smaller parks (10+ units) if you can get it in the great area and with the high cap? I do not want to burden you with the details. I just want to hear your opinions. Thank you. 

I think I've read that its hard to get good management on parks under 17 spaces-ish.  Its so small.  "all the problems of a big park, but with the income of a small park." I've heard.  I think that's a stretch, though, and I think surely its all in the $ numbers!  Hubs and I would jump at a small park that made $ sense if it was in our area, but definately not if it was more than a couple hours away.  Unless we planned to move to operate it, which wouldn't make sense, because I'd have to leave my other business, and he'd have to leave his job, and it wouldn't pay enough to make a living on.   Take away---I haven't bought a park yet!  Just done a lot of reading about it! and driving through them, I mean "bumping" through them.  (speedbumps) :-)  I think when we do buy a park, we'll probably try to go in with a partner that's pretty savy---I think that we would benefit each other a lot, from the combined brain power.  Just my 2 bits.

I live in San Diego and invest heavily in Illinois and texas. Mostly duplexes. Triplexes and still have a handful of sfrs. If anyone wants to partner. My new interest is mobile home parks. Preferably in az. New Mexico. Texas. Colorado. Nebraska. But will consider deals anywhere as long as the city it's in is over 100,000 pop.

@Aaron Ryan , I'm just starting to look at MHPs in AZ. I've been able to find quite a few with nice cash flow, at 10+ cap. 

In fact, one I'm looking at right now has an 11 cap with 20% vacancy. So, huge value add opportunity. They are also offering seller financing. I'm currently debating how leveraged I want to be, and if I want to put 25% down and just do seller financing, or get bank financing at 70% and have the seller finance 25%, and only put down 5% myself. 

I'm open to partnering on a deal to be able to go bigger. Especially after listening to Grant Cardone again on yesterday's podcast. 

What cap rate do you want? What size parks are you looking for? How leveraged do you plan to be on them? Have you found financing, or are you strictly looking for seller financing? 

@Carlos Zapata , I'm sorry if I gave the wrong impression. The deal I mentioned was to give an example of what I'm able to find after just looking at 3-4 deals from brokers. It's likely too small to partner on. 

Details

Units: 30 

Mix: All single wide

Rented space: 24

Number of Park Owned Homes: 1

Utilities paid by Owner: Water, Sewer, Trash

Gross Rents: $116,000

Vacancy: -$23,200

OE: -$36,595 

NOI: $56,205

OE already seems pretty low, so I doubt we'd be able to get them any lower. It's not self managed, so I'm guessing management expenses are included (will have to verify). I think rents are $75-$100 under market. There's a park next door, but I haven't been able to get in touch with a manager to see what rent comps are. 

I'd love to have any feedback on this possible deal. I'm going to contact the broker today to get some more information and discuss an offer. Any questions you guys think I should ask?

Questions:

Rent Roll and financials if available.

What's included in expenses? Management?

Any offers yet?

What rate is the seller looking to carry at?

@Carlos Zapata , Yes, it's definitely too small for most people. That's likely why the cap rate is so high. Similar to apartments, there's a mid-range that the big players skip over. 

We were just looking to get our first MHP under our belt, and like being able to do that with minimal money out of pocket. I don't want to be too leveraged, but the debt coverage is so high, we're considering it. 

We'd then use our cash to instead partner with someone on a bigger deal, in the $1.5-$5M range.