4 mobile home sale -- deal analysis

4 Replies

I found this on Craigslist and was interested to see what more experienced real estate investors (particularly with mobile homes) had to say about this add.  I know this is limited information, but I wanted to see if others got a similar impression of this ad as I did.

Here it is:

Mobile home portfolio 46% CAP RATE. CRAZY CASHFLOW!!!

If you're into mobile homes, you already know the kind of cash flow you can achieve! So buy these 4 mobile homes that are already rented!

Price: $38,000 OBO!
No. Mobile Homes: 4 
Property Sub-type: Mobile Home/RV Community
Property Use Type: Investment
Cap Rate: 46%
Total SQ: 4,000 SF +

Description

Portfolio of four mobile homes with a cap rate of 46%
All homes recently refurbished and rent-ready.

Gross Rent: 30,000
Vacancy Allowance: $825
Total Revenue: $29,175

Lot Rent: $11,124
Maintenance: $500
Total Expenses: 11,624

Annual Net Operating Income (NOI): $17,551

Email if interested in more information or making an offer.

it sounds like they are all vacant. How tough is it to lease up up (whatever general vacancy reserve do you need)? That makes me nervous. 

You should check rent comps and sale comps in the area. Obviously look at expenses objectively. If you can really achieve a 46% cap you can cash flow it or can potentially flip at a lower rate of return you should pull the trigger. 

@Matthew Anderson

The ad paints a very rosy picture that is not reality

-$825 for vacancy ? No way ! MH have a far higher vacancy rate on average than SFH especially one in a MH Park

-$500/yr for Maintenance ?  Even if they are brand new that is a ridiculous number.  Easily 10x that

Add to that, you are at the mercy of the MH Park.  What if its sold and you have to move 4 MH at once @ $2500+ per ?

The ad is trying to sell you an income stream which looks very good in the ad.  The true return imo would be closer to 1/2 that.  They are not even mentioning the MH's,  so my guess is that they are older with limited resale value

Thanks for the comments! I know next to nothing about MH's, but I'm glad I had the same thoughts. My initial thoughts were: how the hell could the maintenance on these old MH's be less than 2% of the gross rent when SFH's are normally (conservatively) 10% of gross rent, and how the hell can the vacancy rate only be $825.

Hi all,

Great comments and feedback Greg and Bob. Spot on advice.

Additionally, smart thinking to post these craigslist details here for us to chat about Matthew. It provides a few good lessons. 

Greg already mentioned the fact that maintenance and vacancy numbers are likely grossly off. In addition may parks will not allow renting, however some do so this could be easily overcome depending on the park. It is odd that all of them seem to be vacant, or at least sound vacant at the moment, which will cost you hundreds or thousands of dollars in lot rent expenses until sold. 

Additionally, we can not tell the ages, sizes, and number of bedrooms in each home. This will greatly determine the demand and value you can resell or rent them for. Besides the home, the park needs to be screened too to past our investor-friendly test.

It sounds like this may be a MH investor aiming to sell their portfolio, or a small part of their portfolio. I can tell you that if they are cash flowing as good as the seller mentioned then many investors would not choose to sell unless necessary. 

Lastly, with all this fear-mongering said my advice would be to call the seller for sure and express your sincere interest to learn more and aim to answer all the unanswered questions above. Perhaps the park will allow you to have a few months free lot rent, perhaps the area is booming, perhaps all the homes are 1990's 3/2 singlewides. 

I heard a saying a while ago that has stuck with me, "Price cures most worries." There is likely a price at which you would feel safe and excited purchasing all these homes for. Aim to always make your money back in 1 year or less when purchasing MHs inside parks. If this seller is motivated and you are one of the only offers then perhaps you can eventually close the deal. Again, there are a lot of hurdles to overcome first.

I hope this has all made sense and isn't too confusing. If you have any extra follow up questions or concerns don't hesitate to reach back out and we'll continue to help.

Talk soon,
John Fedro

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