All Forum Posts by: Frank Rolfe

There are four general methods to find a mobile home park deal:

1) On line listings on Mobilehomeparkstore and Loopnet

2) The brokerage community which can be found on Mobilehomeparkstore then resource tab then brokers (there are about 100 full-time mobile home park brokers in the U.S.)

3) Cold-calling park owners

4) Direct mail to park owners

There are some additional methods that can be used selectively which are blind offers and drop-by, but the above four are the meat-and-potatoes of it.

$200 [estimated lot rent] x 5 occupied lots x 12 months x 50% expense ratio = $6,000 net income estimate.

This does not include any debt service whatsoever.

However, 50% is not the normal expense ratio of a mobile home park -- it's only used when the park is small (under 20 lots).

The normal expense ratio is 40% if the park pays the residents' water and sewer and 30% of the residents pay their own via submeters, RUBS or CAMS. In rare situations it can drop to 25% but only in those cases where the city owns all utility lines and streets and bills the residents direct.

Remember that all of these are basic guidelines that are shared by park buyers, appraisers and banks.

The other huge item to remember is that YOU CAN ONLY COUNT REAL PROPERTY REVENUE. Mobile homes are PERSONAL PROPERTY and not real property, so only the lot rent can be counted.

If you want to approach mobile home parks as detached apartment complexes, you can do that and some have done so very successfully. I know a guy in Alabama that has built a family dynasty with a 150-space detached apartment mobile home park business model. But even he acknowledges that there is zero bank lending possible on this type of project (other than just the lot rent). 

It's a good thing you can't find a bank because that is a terrible deal. You are analyzing this deal incorrectly. Mobile home parks only have the land rental (real property) income to consider NOT the mobile home income. Assuming the lot rent is $200 per month, that would make the property only worth $200 x 5 x 12 x 50% = $6,000 net income which, at a 10% cap rate, is worth around $60,000. But even then, that's assuming the property is 100% perfect and needs no cap-x. 

This seller is trying to sell the mobile home park as a "detached apartment building" which sounds good in theory but no bank is going to agree with it if they know what they're doing. Mobile homes are "personal property" and not "real property" so their income does not count to the bank.  

If you want to buy a 5 unit apartment complex for $199,000, then you can find a bank for it, but you MUST use only the LOT RENT in all future calculations on mobile home parks.

Just trying to keep you out of trouble.

Not sure if this helps or not, but in most states you can surrender the title, declare it to be permanently affixed to the land, and it becomes real property and no longer a mobile home. 

You need to call Kurt Kelley at Mobile Insurance in Houston -- he insures over 3,000 park owners (and most own multiple parks).

The amount you are paying sounds way too low. I don't think you have all the necessary insurances on there. Do you have:

1) Property insurance

2) Liability insurance including a balloon

3) Workman's Comp

4) EPLI

If not, you need to get those added ASAP.

The world gets more litigious each year and insurance is your only defense (along with proactively staying clear of problems)

He can give you a free quote.

My first observation is that I don't believe the numbers the seller is giving you. RV lots include all utilities (including electric) and the expense ratio is going to be at least 40%+ yet he's claiming 20%. And I'm pretty confident he's trying to include the park-owned home rental in that revenue number of $205,000 instead of only the lot rent.

So let's start the back-of-the-envelope calculation all over again. You have 12 mobile home lots and 28 RV lots. Assuming the lot rent on the mobile home lots is $300 per month (just guessing), that's an annual revenue of around $43,200. Assuming the RV lots rent for $400 per month including all utilities -- and assuming they're at 50% occupancy -- then that portion of the revenue is $67,200. So I'm guessing the real total revenue of this property is closer to $100,000 per year than it is $200,000 based on the standard industry practice of counting real property income only (no park owned homes).

If you then factor 40% expense ratio on this, you have a net income of around $60,000 per year, making the cap rate closer to 6% than it is 12%. And that does not work at all.

But all of this is simply based on guesses on my part -- I have no idea what the actual numbers are. However, I do know a few things regardless of the actual numbers:

1) You can only count the LOT RENT on those mobile homes.

2) Expense ratios on both mobile home parks and RV parks are around 40% and NOT 20%.

3) On an RV park of this size -- assuming that all else is fine -- the prevailing cap rate is 2 points higher than a mobile home park and would have to be at least 10% or so to work for a lender.

4) Converting RV lots to mobile home lots is extremely difficult and costly as the lots are probably not big enough to hold a mobile home (so you may have to combine 2 RV lots or 4 RV lots for every single mobile home lot) and the electrical will never handle a 100 amp to 200 amp mobile home (so you'll have to totally re-wire that section of the park).

It sounds like you're life is going good with your current financial structure, so don't mess that up with a bad mobile home park buy. There are plenty of good deals out there, but I'm concerned that this may not be one of them.

Not trying to be a "deal killer" -- just trying to keep you out of trouble!

The problem with this approach is that you convert the homes to permanent renters (which means zero pride of ownership and often zero regard for the park rules) and you allow one person to own too much of the tenant base (most banks will not allow one person to own more than 5% of the total units). We've tried it many times in the past and it typically ended in a disaster unless it is a one-off situation where the "rental landlord" lives in the community and is a stakeholder there and buys just one or two houses for that use. Even then, you must have teeth in your agreement as to the level and speed of home renovation.

I would rather give a home to a homeowner (who would now be a stakeholder in the business model) as opposed to selling it to someone to make it into a rental property.

That being said, all homeowners in the park have the right to rent their own homes out, so it will always happen in a small way. But I would not encourage the concept and you have got to make sure that you don't get in trouble with the banking options.

New homes in most markets cost around $40,000 to $60,000 including shipping and set up if you can buy factory direct.

1990's used homes (mostly repos) cost around half that.

1980s homes cost around $15,000 set up and renovated (but are very hard to find in salvageable condition).

You can find the new homes/factory direct at CAVCO or Clayton (if you are a park owner only). 1990s repo homes come from repo lists from 21st Mortgage, Vanderbilt Mortgage, etc. You can also find decent deals on 1990s homes from home wholesalers.

1980s homes (you cannot move in homes pre-1976 because they do not have HUD seals) are the domain of Craigslist, driving through parks looking for "For Sale" signs, and similar avenues.

You can't put tenants on a rent-to-own agreement since 2008 -- it's a violation of the SAFE Act as it's considered a "disguised mortgage". All you can do today is to sell for cash or rent, unless you become SAFE Ace licensed and do everything in complete conformance to their rules. Before you even think about selling a home or carrying paper in today's litigious world, you need to talk to your state mobile home association (MHA) and find out the options, as well as be a voracious researcher on Google

We've never used hard-money lending, but I've heard plenty of stories -- both good and bad (mostly bad).

Make sure that you do not get involved with a "loan to own" hard money lending group, in which they actually want you to default on your payments so they can take the property away from you. Instead, you need a group that is aligned with your goals and wants you to succeed and not fail.

The moral is to do plenty of research on who you would be borrowing from -- call their references and ask them plenty of difficult questions.

The lender and borrower must be identical in their vision of success for any relationship to work properly.