Hey BP, I'm new to the forums and thought I'd jump right in by asking for advice on a potential deal. It's a 44 pad mobile home park, and although I don't have any experience with MHPs, the numbers seem interesting enough to consider. I have the option to bring in an experience partner if needed. Any insight would be greatly appreciated!
Here's the scoop:
- 40 of the 44 pads are filled
- Park owner owns 27 of the mobile homes (no vacancies)
- Most of the homes range from 1990s to early 2000s
- Park road needs to be paved, some of the homes (maybe 3 or 4) need to be replaced.
- City water, but not sewage. Sewage treatment facility on property
- Owner is currently handling all repairs and management so expenses are pretty low (about 20k/year)
- Seller's bottom dollar = $800k
- Gross rent = 210k, expenses = 20k, so cash flow = 190k
- Each home rents between $500-700/month.
- Each pad rents for $175 per month (could bring this to $225 or so after upgrades)
- Assets and property appraised at $350k
Our long term goal would be to upgrade the park (maybe 100k over 2 year span) and work on rent-to-own deals with the current tenants so that we only own the lots at $225-250 each.
quick evaluation...40*175*12*.6/10=$504,000...this is number of occupied lots*current lot rent*12(to annualize)*60% or .6(40% operating expense because park pays water and sewer and higher because private sewer) divide all that by 10(which assumes a 10% cap rate)= purchase price. Then you can add in the value of all the park owned homes, which is 27*$5k to $10k=$135,000 to $270,000. total purchase price could in the range of 635k to 774k. Not necessarily that far off.
I would assume a pretty high expense ratio, probably closer to 50% becuase of the high amount of park owned homes. iF they are willing to finance, it probably wouldn't' be a bad deal.
Just keep in mind that the sewage treatment plant, also know as waste water treatment plant does cost more to run, depending on the state, also if it goes out, it could cost close to 500k to replace depending on the type of plant.
Biggest negative is the 27 POHs. Too much work for too little return based on 50% expenses. I personally would not invest in that many park homes especially with lot rents as low as 175 unless rents are well below market. $225 really isn't that much to make having to off load 27 homes worth while.
Thanks for the feedback fellas. I think this sewage treatment operation is pretty simple @Ryan Groene , but it is certainly something to consider. And I agree, having 27 park owned homes sounds like a headache, but would it really be that hard to move these tenants to home owners @Thomas S. ? If the options are 1 - We increase the rent to compensate for the extra time or 2 - We can work out a rent-to-own deal, it seems like most would take option 2 without much flack.
hopefully it isn't that hard to do. but it also depends on the makeup of the tenants. and sometime it is easier said than done depending on the market. Don't underestimate the operations of the treatment plant....
it is not a lagoon right?
Nope, not a lagoon. The processed waste water dumps into a canal behind the property... From what I have been told. I have not viewed this property in person yet.
Moving 27 tenants to home owners will take years and many will default or simply walk away. Homes you get back will require Reno before reselling. It is not easy to transition from POHs to tenant owned.
As I said this would not be a community I would take on but probably a challenge to others. Unfortunately your market rents simply are not high enough to be exciting.
@Cody Strickland - you should strive to get low teens unlevered returns on your first investment. Essentially, you don't have enough margin of error on this deal especially on a first buy.
The WWTP alone is a huge risk that you should consider more heavily. $300-400K is a monster expense for a $800K park. If this a mutli-million dollar deal, it can be stomached easier. Still not an easy decision for a first park.