5 Unit Manufactured Home - Deal Analysis

[Blayke Silveira]

I am currently analyzing a deal in Idaho that includes 5 manufactured homes that would be owned by me and not the tenants. The numbers seem to work but I do not know if there are other things I should be factoring into the analysis. So far I have this:

Purchase Price $225,000

Down: $45,000

Rent Roll -$3300

NOI - $1652 (After deducting 5% Vacancy and 25% for Maintenance and Property Management Fee)

Monthly Net - $900 

Resulting in a 24% CoC Return and 8.82% Cap Rate. Some questions I do have: Is there some thing I can work out with the tenants so that they will own their own homes in due time? Also will this be considered a commercial deal since it has 5 units. Also what are some other things I should be aware of when investing in Manufactured Homes? Thank you so much for any information you can help me with.

[Mark Smith]

Congrats on getting out there but this is not a great mobile home park deal.  I do invest in mobile home parks and own 2 currently.

The questions you should be asking are:

What is the market lot rent and how does it compare to your deal?  

Age and condition of the homes?  Old homes are a maintenance nightmare.

Who has title of the homes and are they clean?

Who pays utilities?

What kind of utilities are in the park?  Private or public

Are any of the utilities master metered?

Is the park legal, does it have a license to operate as a park?  If not, walk away, don't even look back.

Small parks should be purchased at a 10 cap or higher based on LOT RENT only, not home rent, particularly if you want the renters to buy the homes.

Finding financing for this park may be a challenge, it won't meet underwriting for any of the common products most banks offer and you will probably need 30% down and a strong business case as well.

If lot rent in the local market is 300/month at a 10 cap my max offer would be 300x5x12x.6 x10 = 108K.  This assume a 40% expense ratio for private utilities.  You could go as low as 30% expense if it's public utilities paid by the tenants but that is rare.