Mobile home park with single family homes deal
Real Estate Broker · Bozeman, MT · Member since 2012 · 220 posts · 52 votes
I've come across a deal that I could use some help with:
2 acres +/- near active downtown area
small mobile home park with 80% of units owned by landowner
3 small single family homes on lot as well
100% occupancy
asking 995,000
gross rents 80,700
expenses (per agent) about 12k
probably managed by a PM, as they are the listing agent as well.
Owner financing avail (not sure what yet) & willing to carry contract for deed with some down (owner is an agent). Wants to do a 1031 exchange or have interest in partnership development
The most I could put into it would be 40-50k at this time. My rough numbers using the 50% rule look pretty tight but I see some potential with the property location and the single family homes existing on the property.
I don't have 25% to put down on such a large deal, but instead of getting discouraged I thought I'd ask the opinion of some BP folks. How would I structure a deal like this?
Page Huyette You'll really need to break this number down to determine the market value. How many mobile home lots are there? What's the lot rent? Don't consider the rent from the home themselves to determine value.
You will really need to parse out the mobile home park value and the SFH value. And I would expect a pretty nice cap rate on the homes since they are embedded within a park.
If you use a cap rate to determine the park value, keep in mind that the operating expenses of a park are lower than SFHs. Most estimates put it around 35-40% of gross rent.
A common formula to determine valuation of a park is (# of occupied lots x $lot rent x 60) + (# of empty lots x $lot rent x 30) + whole sale value of the mobile homes.
Thanks for the insight. I'll start banging away on my calculator. First pass shows 1.12 debt service coverage with my numbers. If the lender wants 25% down, would it be reasonable to put, say, 45k down and have the owner carry the second for the rest?
Just thinking out loud, trying to wrap my head around different loan structures.
Page,
I see $995k asking and only $81k gross rents, if I deduct 35% expenses like Bill W said so I calculate $53k NOI. Thats an CAP rate of 5.3%. In this case its only possible to buy cash in my mind or with heavy down starting 50%+.
I looking always for min 10% CAP to secure financing and propertie maintenance for long time hold.
With not much money in my pockets I would stay away from this propertie.
-Uwe
Page -
Unless by "near active downtown area" you mean "Beverly Hills," I would stay away from this deal at this price. Good 'future-proof' mobile home parks have room to bring in the new 16'x80' mobile homes today's market wants. So that would mean you could fit only 10 homes per acre. So if you property is 2 acres, I would estimate it has approximately 20 home sites (perhaps even a few fewer if some of the land is taken up by the 3 small SFHs). Pads are generally generally worth 70x the monthly rent if your property is on city water and sewer. Let's say rents are $200, so each pad is worth $14,000, and the entire park (the 'real estate' - not the 'wheel estate') is worth $280,000. Now you have to value each mobile home (the 'wheel estate') at it's cash value. Don't apply a cap rate to the income from the homes. Used 1970's MHs might only be worth $1,000. Early-2000s 16'x80's in good condition might be worth $20,000. 16 of these at, say $10,000 ea. (assuming they are late 1980s MHs in good condition), would add another $160,000 in value to the property. If you subtract out a few because they've been displaced by the SFHs, and add back, say $50,000 for each SFH (have they been parceled-out on their own land?), might add another $100,000 net. So I would guess this property might be worth $500,000.
Another rule of thumb is that MHPs trade at about 7.5x gross rents. $80,700 x 7.5 = $605,000.
These are all very rough estimates, but as I said, unless this property is in Beverly Hills, I think the value is way high.
You might consider joining my 'Mobile Home Park Investors' group on LinkedIn. We are the largest such group of MHP owners/operators, and I've written a few articles that cover valuation extensively.
To your continued success,
-Jefferson-
Unless by "near active downtown area" you mean "Beverly Hills," I would stay away from this deal at this price.
You crack me up! My initial projections for this property showed it valued at 526k, just slightly higher than your very detailed analysis Made be feel like I may be getting the hang of this numbers game. Each day in real estate brings new excitement.
I think my head light bulb went off on this one because it offers owner financing, and for a property of this size, that would be the only way I could do it. After kicking it about, I may still look into the details of what the owner wants out of it a bit more, but am thinking it's probably a pass. Going through these numbers has piqued my interest in mobile homes, since they seem to be a good way to experiment with rehabbing and reselling if you want to start out somewhere and have limited cash. I'll check out your group.
Thanks to all of you who've replied so far--great insight.
Yes, it would reasonable to have terms like that but not for their asking price. Their asking price is so far off from its income producing value, I have a hard time imaging there is a deal here. The expense estimate that the agent is providing is a joke at 15%.
Before determining the value, you'll need to know how much of the $80,700 in gross rents comprise of:
A. Lot rent
B. Mobile home rent
C. SFH rent