Deal Analysis MH Park with additional Units

[Swis Stockton]

Hey all. 

I'm also a total first timer, been looking for first RE deal for 14 months, nothing so far. I recently came across a MHP offer on the MLS near my home and am having trouble analyzing the deal because there is a mix of POHs, TOHs, and actual rental houses. Could I get some thoughts from the community with some experience in the matter?

This MH property appears complex: It is a rural, older, class C/D, unpaved parking type place with no real landscaping.  Very few trees/no significant tree hazard.  

--14 MH lots:  4 empty, 1 with a very old trailer that needs redo or removal, 7 Park Owned Homes (POHs) with recent rehabs and new heat pumps-(rent $800 each), 2 TOHs pad rent 430 (400 + 30 water).

--There is also an old school house with metal roof turned duplex that brings 1200 monthly.  

--Also and an old 600 sq foot 2bed/1bath house that needs ~10K to get it rentable and bring at least $500.

Total Current Gross is 7600, this does not include the small currently unrentable house.

Expenses: 
They have offered very little in the way of expenses. They kept poor records.  Very few trees to worry about. River nearby but flood insurance very cheap.   Two wells on site. (one new pump and pressure tank), two septic systems pumped by county for ~100 month. 

They are asking  500K.

To make things more confusing, they are they are offering adjoining property with a 3/1 house for additional $160K, should bring $1200 rent.  So total for both lots asking price is $660K. 

The current owner bought both props 18 months ago for $455k (290 and 165k).  He spent ~ 100 K in repairs to septic, water systems, rehabbing old trailers as above, and getting poor clients out and bringing in dependable ones. 

What I do think I understand:  I know it will cost a lot to bring in more trailers. And I know there are too many POHs.  And while the actual houses may count as real property, i dont knwo how to bring them into the analysis for valuation.  My ideas about this have been all over the place. I have used several calculators but the duplex and house(s) make it tricky. Make an offer for both properties and then dig into the due diligence? Run away fast? Take a vacation?

Any help from experienced folks would be greatly appreciated! Thanks!

[Chase Louderback]

Hi Swis,

For your first real estate/MHP deal, you're likely to get analysis paralysis no matter how you slice it, but this type of deal will especially give you brain damage.  It's essentially a 9 lot park (4 empty and 1 very old trailer is likely a teardown) with 2 houses. 

Valuation:

-Typically we value parks on the NOI from the lot rent only and then pay a shell value for the POHs. If you don't have the expenses, then we apply an expense ratio that's normal for this type of asset (40-45% for well septics). So, if $430 is the current lot rent, then it would be:

Gross Lot Rent x Paying Lots = Gross revenue ---- ex.($430 x 9 paying lots = $3,870)

(Gross revenue x 12) - expense ratio= NOI ----- ex($3,870 x 12) * .55 = $25,542

For an asset that is small and clearly hands on a 10% or higher cap rate in the current environment would be fine.  $25,542 / 0.10 = $255,420 on Lot rent value. 

From there, we would add the POH shell value (what could they quickly be sold for cash for to a buyer) and the home values to it to determine a fair price for the total property.

Now I feel the most important question before you even do the leg work to find out what the shell values & homes values would be is asking yourself two questions. "Does this align with my goals?" and "If I ever had to sell, how easy would it be and who would my end buyer be?"