Mobile Home Park Deal Analysis

14 Replies

Hey everyone, I'm new to the site and appreciate any responses and feedback.  I've been doing fix and flips, single-family and multi-family rentals with my two partners for a few years now but we are looking to get into the mobile home park arena.  We recently came across a deal but since we are new to this aspect of real estate, I was hoping to get some outside opinions on whether you all think this would be a good deal. 

A little background:

The park is 14 acres, sits 5 minutes from both a popular lake destination and a popular fishing river.  it has 45 pads on it, all of which have outdated mobile homes that are park owned but need to be replaced.  in addition it has 2 small cabins and 2 single family homes on the premises.  half the roads are paved, the other half are packed gravel and it has a large shop on the premises.  The overall park is definitely a little run down but has potential to have new life injected into it.

The financials: (these have been verified with backup documentation from the broker)

Asking price: $800,000

Annual Rental Income: $181,500

Annual Expenses: $58,225

NOI: $123,500

Cap Rate: 15.43%

From what I can tell (depending on financing) that would provide a good initial cash flow, and if you were to put that cash flow back into the park to bring it up to date with newer trailers, etc... you could charge higher rents and increase your cash flow even more. 

Based on this, what are your thoughts on this as a mobile home park investment?  If you need more information for a better evaluation just ask and I can provide it.  Thanks for all your help on my first post here at bigger pockets!

@Jesse Womack

Good for you!  I closed on a 100+ pad site earlier this year.  Took a while to find a  lender but I did.  Mobile home park financing is tough.  Depending on the condition of the park it may be a good deal or it may not be.  If you end up getting it under contract, contact me and we can discuss financing.

Originally posted by @Salvatore Lentini :

@Jesse Womack

Good for you!  I closed on a 100+ pad site earlier this year.  Took a while to find a  lender but I did.  Mobile home park financing is tough.  Depending on the condition of the park it may be a good deal or it may not be.  If you end up getting it under contract, contact me and we can discuss financing.

 What type of financing is typical for mobile home parks?  Do banks offer financing for this type of deal or would you suggest another route?

Based on the numbers you stated, it's a home run even before upgrading it. You can buy re-possessed mobile homes pretty cheap. Transport and set up are where the costs are. I have actually been looking for one for a few years, but most are in such bad shape, it would take me forever to clean them up. I would do that deal if it were near me.

Sounds like a pretty good deal. Here are a couple questions. What kind of services? City water and sewer? All Paid by the tenants? Or septic? What are the average rents at the other parks? Average lot rent of the area? Nice that it is 45 homes all park owned. How many are occupied?

There are a lot of things that are going to to have to be separated here before you can properly value this park. First is how much rent do the houses and cabins bring in? Second would be what is the approximate value of the houses and cabins if the can be separated from the park? What is the going rate for lot only rental in your area? How much would it cost you to replace these trailers and where will you find the replacements? Public or private water and sewer? 

Sounds like a good one. Here are a couple more questions to ask.
Occupancy?
What kind of services? City water and sewer? All separately metered.
What are the average lot rents in the area? Rents for mobile homes in the area?
Long term tenants? Get insurance quotes to make sure that number doesn't go up significantly. Sometime it is hard to insure the old mobile homes so all the value will have to be put on the land and the houses that are on the property. There will be some kind of commercial financing with 20-25% down.

Originally posted by @Robert Hudson :

There are a lot of things that are going to to have to be separated here before you can properly value this park. First is how much rent do the houses and cabins bring in? Second would be what is the approximate value of the houses and cabins if the can be separated from the park? What is the going rate for lot only rental in your area? How much would it cost you to replace these trailers and where will you find the replacements? Public or private water and sewer? 

 Thanks for your response!  To answer your questions, the cabins rent for $400 per month and the homes rents for $650 per month.  I don't believe the cabins or homes could be separated from the park but their total replacement value would be close to $250,000 total.  Lot only rates run around $300.  The goal would be to hit other mobile home parks in the area looking for owners who are trying to sell their homes.  This is where we are at a bit of a loss.  Is there an average known cost for a used mobile home including the moving costs?  Water is city water but the sewer is septic system.  All homes are metered for their own electric. 

Originally posted by @Tony Conway:

Sounds like a good one. Here are a couple more questions to ask.
Occupancy?
What kind of services? City water and sewer? All separately metered.
What are the average lot rents in the area? Rents for mobile homes in the area?
Long term tenants? Get insurance quotes to make sure that number doesn't go up significantly. Sometime it is hard to insure the old mobile homes so all the value will have to be put on the land and the houses that are on the property. There will be some kind of commercial financing with 20-25% down.

 Hey Tony, thanks for your quick response!  As the owners we would provide trash removal, all repairs and maintenance to the homes since they are park owned, care for all of the landscaping, grass cutting, tree trimming, etc.  The water is city water which the park owners pay (cost is included in rent).  Sewer is septic system.  All homes are metered for electric separately.  Lot rents average $300 and actual park home rents average about $650 - $700.  This park is significantly under that current park owned rental rate because the homes are older.  So I believe there is a lot of upside there if any income is put back into the park to bring it up to date.  currently about 1/3 of the tenants are long term.   

@Jesse Womack Definitely check the infrastructure. Depending on the age of the park, you may have to do some upgrades (i.e. electrical, plumbing pipes, paving roads, etc). Also, check with zoning to verify if there are any deed restrictions on what you can and cannot do. Lastly, check with your local manufactured housing entity in charge of titling mobile homes to see if there are any licensing requirements for operating a mobile home park. Hope this helps! 

@Jesse Womack Septic tank issues may arise. You may have to pump the tank every 5 years or so. Adding additional fill lines is expensive. This thing is cash flowing, so save up a large cash reserve for emergencies, then replace the worst trailer first and improve it over time. You can also offer owner financing to tenants who want to buy. Even after they pay it off, you still get lot rent. Over the next 10 years, wouldn't it be great to have zero park owned and just collect lot rent? Reduces your maintenance costs dramatically. I would definitely do it.

@Jesse Womack It looks like you have a pretty good deal on your hands. Are you ok with owning, as Jefferson Lilly refers to MHP with all POH, a horizontal apartment building? 

I'd value the park as three separate assets, the MHP (treating the park as if every home was owned by an owner occupant), the Mobile Homes, and the SFRs, then add the results together. Keep in mind all of these numbers assume that this area has growth potential or as least isn't losing people to other areas.

MPH: $648,000.  45 lots at $300 a month lot rent, assuming 40% expenses due to the septic, roads, and other maintenance. Used a 15% cap to account for the work that goes into running 45 rental units and to pay you back for the skills/time you'll use to turn the park around.

Mobile Homes: $112,500-250,000. You said outdated so I assumed metal roof, metal siding, which could go for between $2,500-$5,000. This number could flex based on true value of the homes. It may be more or in the worst case it could go to $0. 

SFRs $92,400: This is tricky. You said you think their worth $250,000, but that they can't be separated from the land, which means you can't sell them off individually. That fact kind limits the comparable sale method of appraisal. Thinking worst case you value the four properties based on income stream. $25,200 a year gross, less one month vacancy for each property and 60% expense ratio and a 10% Cap Rate.

Total Value: $852,900 Your risks lie in what the homes themselves are worth, the capital costs in infrastructure repair/replacement, and if the market will continue to support the park in the future. 

If you plan on using bank financing, the will want you to have the ability to pay for some large capital expenses if things do fail (ie. septic) That means you''ll need to have another 10% above the down payment. That doesn't include the cash you'll need to make capital improvement. 

Have you asked about owner financing?

Just crunching the numbers this appears to be a very good deal. One thing I have noticed is that, based upon your numbers, the mobile homes have a value of zero. Actually, in some ways, they have a negative value because they will have to be removed. Your biggest challenge is going to be replacing these old units with newer ones. Good used homes are much more difficult to obtain now than they were a few years ago. Replacing these trailers could cost you as much as 600k. Of course you will get your money back through rental income but acquiring the capital to purchase these can be tricky. This park does seem to have the potential to be quite profitable but you will earn every penny.