Mobile Home Park Deal Analysis

[Liz Reagan]

Hi! I'm hoping to get input on a mobile home deal. This park has 25 spaces being sold as a package (19 in one park and 6 in a smaller park down the street). They are on city utilities but there are no separate water/sewer meters and the owner has indicated separate meters cannot be installed.

So here's the breakdown:

8 lots occupied

9 lots vacant

5 vacant park owned rentals (all need work before they are habitable)

3 occupied park owned rentals

$165 lot rent

Asking Price: $125K

The owner says he will not do owner financing which may present an issue, but I'm not sure yet. Everyone pays their own utilities but the water/sewer looks like a pain with everyone paying piecemeal and several are many months behind.

There is an encroachment that occurred when the city decided to expand the street. Once the street expansion begins three of the mobiles will need to be moved forward.

This does not seem like a huge deal but I'm trying to include everything.

Several of the pads need work-the cement is broken up.

I believe the owner fired the manager so this could be a problem.

 I have never owned a park and would have to get on an airplane to get to this one. As you can see, this one has some issues! I will be taking a class and have been studying the forum to absorb all I can.

Input on price and this entire scenario would be very much appreciated! Thank you in advance!

[Scott Collins]

I'm a total newb myself, so take whatever I say as mere observation. 

But .... 

Twenty five spaces and more than half are vacant? 

Gulp. 

And then the owner is trying to do the utilities as a pass-through without separate metering? 

And then some of the units need to be moved, and oh yes, the manager got canned? 

You already know there are a ton of negatives here. That said, there's also an opportunity if you can get it for the right price. 

At the moment, you're looking at less than $25k annual lot rent and an awful lot of expenses, including repair of broken pads and moving of units. That's going to eat away at an already small gross, at least for Year 1. 

So a $125k valuation is ridiculous. 

But assuming you are confident you can increase the occupancy rate to 90% within a year, you should be able to return a nice profit if you don't spend more than $40k-$50k. The less the better. 

Your seller is going to hate that price. But then he hasn't exactly been the world's best manager, has he? 

I'd be interested in hearing what other investors with much more experience have to say, though.

[Liz Reagan]

Thanks for your comments, Scott! I agree, it looks like it might be overwhelming! The owner actually sold the property with owner financing and just got it back...in a mess. This is likely the reason he is looking for cash.

I don't know if this water situation is the norm and I'm with you that it'll be interesting to see what others with experience have to say.

I actually think the price is in line but maybe I'm overly optimistic!

Thanks again! 

[Joseph Ball]

You should start with something simple, such as a 3/2, with minor rehab.

[Account Closed]

Never, Never, include the income from the park owned homes in the deal. NEVER. They will break you. I learned a lot from these folks about MHPs  and purchased their book which analyzed many of their deals. They are the gurus. I would not mind the vacancy if you think you can get it well. Learn how to inspect a MHP, run some cameras down the sewer lines, check for water leaks, other infrastructure, etc. If it seems doable....

Most I would go is 8 * 165 * 60 = $79,200 cash, but try for owner carry.

Then, once you get it fully occupied and running well, sell at 19 * 165 * 60 = $188,000

or raise the space rents to $195 and sell for 19 * 195 * 60 = $222,300

http://www.mobilehomeparkstore.com/

[Liz Reagan]

Thanks for the advice Joseph and Tom!

Tom, should I include just the lot rent (not the rent) from the 3 park owned homes  plus the value of those homes? That's how I was getting closer to the $125 figure. I was doing 11*165*60=108900+15K=123900. Do you agree or no?

Also, what do you think about my distance from the park? That's what makes me uneasy.

Thanks again and I'll check out mobilehomepark store!

[Liz Reagan]

Also, it's two parks (19 and 6). The owner is combining and treating it as one park. In terms of valuation, should I be treating it like one park as well or like to separate parks? Thanks so much!

[Account Closed]

Hi Liz, oh I missed the other space-rents in my formula.

But yes, rule number in MHP investing is "Never own park-owned homes (POH)." I would sell them to the tennants just to get out of the repair liability. Do not include POH rent as part of the income.

Thus, a revised quick and dirty valuation would be:

11 * 165 * 60 = $108,900. This assumes 40% operating expenses, but, perhaps the actuals are less. If the park is decent I use 70 instead of 60. You need to inspect the utilities to each lot: electrical, gas, water, and sewer. Are they on sewer or individual septic or community septic? You might be able to find out who owner was that gave it back the the seller and get their take on the property.

If you decide to pass on this, please let me know who the seller is as I might be interested.

Good luck!

[Account Closed]

Regarding the distance, that could be a challege. If I were buying the park I would have to see it and talk to all the folks who live there as that's another way to find out about hidden problems. I would find someone willing to live their for free and be the heavy. If I had to, I would kick all the tennants out, dress up the park, start over and get it filled-up. Again, it all depends on the location, condition, estimated repairs, competition, etc.

[Joseph Ball]

Nationwide, there is a Seller's Market today in mobile home parks, and apartment buildings. 

Do you have a motivated seller?

I understand the government is cracking down on mobile home park septic systems, forcing many to convert to pumping station, feeding to force mains. 

Better ask. This could be significant.

I still recommend something simple, as your first venture. If you get burned on your first transaction, you will leave the gene pool. There are few things better than a portfolio of SFH 3/2 houses, acquired one at a time. Little deals.

[Curt Smith]

Tom's formula is good.  But typically you add in craigslist value for the POHs of say $2k to $3k each to the valuation price.  

No one is mentioning cash on cash valuation. All the above is for the offer price, all well and good. But COC is the most important number for a buy decission. We won't touch a deal for less than 30% offered, 25% closing. The only way you get to this performance is with debt. Either, private lender or seller financing. Tell the seller you won't do the deal for less than 25% cash on cash and show that you probalby will need 70% or more seller financing to get to that.

[Collin Goodwin]

Liz, the encroachment issue really caught my eye. Although I was not around for it, I heard of an issue here in SD where a park was located in a public right of way. Because much of the MHs were older, it was next to impossible to move most of them and definitely not worth the cost. The park fell apart and much of the occupants were displaced. Just wanted to bring this up!

[Liz Reagan]

Hi All-thanks for all the great advice! The park is on city sewer so I think I'm okay there. Thank you, Tom and Joseph for bringing that up! Tom, that is a great idea to find out who the previous owner was and I'll try and figure that out. I'm also with you on making this PO'ed home lot rent only. Curt, I appreciate your advice on the COC percentage and I used that to formulate an offer. I did find out the previous owner took all security deposits so this is an issue to figure out. Collin, thanks for the info on the SD encroachment. This sounds similar. This is what I was told: "when the city assessed a new setback for the street they intended to add curb and cutter too within the next 10 years. There are three homes that are encroaching at this time. Any new homes added must abide by the new setback" I need to look at this closer . I do not know the cost to move homes forward slightly or to bring new homes to a location that's now forward. I should find out how many vacant lots this will affect. Any ideas out there on the cost for these activities? Thank you all for your comments. We own a couple SFR's but this is new and more challenging than what we've done in the past. I appreciate everything!

[Curt Smith]

@Joseph Ball Do you have URLs / documentation re gov crack down on septic.  My guess is that septic is a county issue, not even a State issue.  

Wells yes I have heard that EPA is working on insane multi-times a day testing and FL parks where hit.  But Even EPA regs are implemented and enforced at the state level.  So it could be that FL is farther out there then other states.  Like Dodd Frank regs affecting parks seller financing park owned homes to occupants it's all alot of guessing and waiting game till we have more case law (from a few strung up examples).

[Joseph Ball]

Sorry, Kurt. I have no URL's. My source is a major nationwide Mobile Home Park buyer. I had lunch with him last Thursday. That is what he told me. "Watch out for septic issues". It is now on his checklist.

I am developing a 6 acre parcel in Central Florida now, and I have become aware of cost of lift stations.

[Curt Smith]

@Joseph Ball Ok thanks.  I'll ask the frank and dave folks at the mobile home university's forum.  A credible place to ask big league questions.

Good luck with your new park.  You might be one of the few new parks being built in the country.  Maybe because of $800/mo POHs in FL?  :)