Help analyze this Mobile Home Park deal in Indianapolis

11 Replies

Hi all,

Would like to get feedback of a possible mobile home park deal that I have on contract in Indianapolis, IN. 

It is located 4 minutes away from the Indianapolis Speedway, 10 minutes away from downtown, and resides in a C-class neighborhood of Indy. 

11 abandoned mobile homes (1960’s and 1970’s models) on the premises. All of them would be transferred over to the new owner. Exteriors of the home are in average condition. Interiors of the homes are unknown (fire department boarded up the doors and windows to each home). All back taxes owed on the homes will be paid by seller (the bank). This park was abandoned about 1.5 years ago after the owner defaulted on the loan, and hence all utilities were shut off, forcing all tenants to leave. I called the State department of Health and they stated that mismanagement of the park from the absentee owner caused the park’s dysfunction. 

- 18 lots.  11 abandoned mobile homes.  7 empty lots.

- A 3 BD/1.5 BA also resides on the property...which was used as a 2 BD/1 BA and office.

- City water/sewer.  Water is master metered.  No sub-meters installed.

- Paved roads.

- Electrical AMP needs to be updated for all lots.

- Trash utility included as part of property tax payment.

- Market lot rent: $410 - $460.  Market rental rate: $700 - $850

- $250,000 offer accepted by seller, 35% down, 20 yr amo, 7 yr balloon, 7% interest rate. Offer contingency rests heavily on condition of the park and the interiors of the abandoned homes...and assessing whether these homes can be repaired—and if so, will it cost me an arm and a leg to repair 1 or 5 or 10 of them.

Obviously, this is a distressed, non-performing MHP, which has a ton of risk. The positives are the attractive city location within a big, growing population...in a city with strong job growth within the health and education sectors, among other big employers. 

I’d like to get feedback on this mobile home park, and specifically, is it worth my time and money? Or am I better off passing on it? I’m supposed to go to Indy in 2 weeks to visually inspect the grounds and interiors of the homes with the broker and a mobile home contractor. 

I own a portfolio of 2 cash flowing multi-family properties in Southern California, but this would be my first MHP deal. I reside in Southern California.

It will probably pencil out once you get it full. Depends on if you subscribe to having only tenant owned homes versus being okay to manage the park owned ones. Not sure that I would do one that far away, needing that much rehab as a first deal. If you do, definitely have some good reserves to get all of those repairs done and more money for the things you will discover after you buy it.

The existing mobile homes are a liability. Mobile home manufactured before 1977 used aluminum wiring and are considered a fire hazard. Most of these homes are narrow and make for very small rooms and are undesirable. Honestly, you should figure the cost to dispose of these units and start new. For a lot to have any value it must have a home on it to produce revenue. You need to calculate the cost to acquire 18 new or used mobile homes moved and set up on your lots. Used homes are pretty hard to come by if they are decent. You don't want to waste your time moving an older home. Add the cost of these homes to the electrical upgrades and the demolition and cleanup of the park. Here it the real number you need to be concerned with.

Maybe if you could negotiate a smaller price and sell/give the homes to people to live in that will pay you rent could be a faster and less capital intensive way to get the park up and going. 

What would the raw land be worth without the MHs? They should prob. pay YOU to take the MHs. What would it cost to dispose of them if the city forces you to do that? What shape is the electric to the MHs? 30 amp./50 amp? Sewer and water lines? Cast iron sewer lines may be rusted out. Indy has a LOT of flat buildable land. What would the cost be just to start from scratch? You can usually get used singlewides on Craigs list for 5k to 10k in decent shape. Will the city let you put singles on the land in 2019. The singles there may be grandfathered in. Is it commercial land? 

@Jason Ray Richardson all points noted. The distance of the park is not as much of an issue as is the overhaul that will be needed to rehab the homes and/or to execute infill of new homes. Like you pointed out, I have thought about posting an ad that will allow a tenant to own the abandoned home if they do all the rehab themselves...and then moving forward, they would pay the monthly lot rent. 

@Don Gouge I agree that older homes pre-1970’s can be a liability. During the walk through, if I deem some of the interiors of the homes to be non-salvageable, then I am planning on demolishing the unit(s) on-site and tossing into a dumpster. However, other park operators have done well by rehabbing older homes (assuming the needed repairs are less than $15,000)...in the end, shelter is shelter—especially with the shortage of affordable housing that is available. 

@John L.  yes, I have contacted 7 different mobile home parks in Indianapolis. 5 of them are completely full, with no lot rentals/purchases available. The other 2 are in B-class neighborhoods of Indy and have brand new mobile home rentals they are offering for $800/month. 

@Jonathan Slagill I will have to contact the city to see whether it would even be possible to start from scratch, as mobile home parks in general are not beneficial to the city from a tax revenue standpoint. This park already has a zoning issue since the utilities were shut off 1.5 years ago. But the broker is working with the city to secure and confirm the zoning designation to continue to use as a mobile home park. According to the broker, city approval is pretty much a done deal. Electric amp is 50 amp. Condition of Water/sewer lines are unknown. A plumber would have to snake a camera through the sewer pipes. A better option would be for water to be turned on to the park (water is master metered), so that I can use a hose and blast water into each sewer line on each lot. This would easily confirm viability of the water and sewer line infrastructure. 

If you buy and need help getting newer mobile homes let me know, i had a guy looking to sell his last month.....was pretty decent.....but i didnt have much time to do the logistics.......we were in a time crunch smh

@Jim Kimmer Hopefully you will take this candid perspective without taking offense.  

Based on what you have shared here, you would be starting with a completely vacant property with no income.  If this is your first park, I would highly suggest you ask yourself if you want to go through the brain damage.  

First, let's look at what this park can become: Let's call the lot rent $425 x 18 lots x 12 months = $91,800. Take out 40% for expenses and vacancy (to be fair, expenses would likely be higher since you will be an out of town owner) and you arrive at an NOI of roughly $55k. At a market cap rate of 8% (may be different for 2 star neighborhood in Indy?) your park is worth roughly $688k when it is full and stabilized.

To get there, at a minimum you will have to:

  • Repair the 11existing homes x $15k per home = $165k
  • Hunt down 7 used homes, transport, set up, make repairs x $25k per home = $175k
  • Sell all 18 homes to qualified tenants (you will likely have to carry paper on the homes, which will eventually return the capitalization above, but assume it will take 5 years or more)
  • Repair the park infrastructure, roads, signage, the residence, landscaping, etc (let's assume you will spend at least $50k on this if you are lucky, though it could easily turn into a lot more) 

The bullet points above will likely take a couple years and it could take double that, depending on how aggressive you are, what the availability of good labor/contractors in Indy, and what kind of demand exists for that location.  There's likely more to consider, but for the sake of this thread, the question you have to ask yourself is whether you want to take on a deal with years of brain damage and have $640k into the property?  It could be a great property when it is full, but you will be bleeding for a long time before you get there. 

With all that candor, if you do decide to pursue it, consider the following ideas:

  • Ask for a price reduction. Make sure your possible exit strategy includes selling it as vacant land.  That way, if you need to eject, you have another exit.
  • Ask the seller to carry with no payments for the first 2 years, so you can focus on turning the park around and not worry about bleeding cash flow that is not there.  You can put performance measures in place to make the seller comfortable with this.
  • Find a local MH expert to partner with, a local contractor who specializes in MH remodeling, and a local MH dealer if that is required in Indy. Make sure you have a team built in advance of closing the deal.  They will be able to give you realistic expectations.  

This is clearly a heavy lifting deal and although it would be one that could be rewarding to execute on, I just think there are value-add better deals out there with cash flow the day you close.  

All the best,

Jack

@Jack Martin This is the exact type of input that I needed, and is the sole reason why I posted about this park in this forum. Thank you so much for the time and effort you put into your post. 

Like you said, it will require so much capital expenditure and patience. And the biggest thing is, will it be worth the stress and headache that this turnaround project will require. This park appealed to me because of its quality location, attractive demographics, and the fact that it is just so much harder to find parks these days with so much investor capital on the sidelines chasing the same product.

I will counter the seller with a Much lower price (sub $180,000) and offer the seller carry terms that you mentioned. The worst thing the seller can say is “no” and then I will just move on. Again, much appreciated.