Mobile home park

[Jeremiah Johnson]

Hello all, I am looking at a 13 unit park to invest some of my self directed 401 in. It looks like a decent deal, but I am wondering what you would recommend for an offer and how to best finance to maximize return. Or should I just pay cash for the whole thing with the 401. Details are as follows:

Purchase Price: $127,900
Land Size: 1 Acre, plus an additional .87 acre lot to the North of the site.
Mobile Home Lots: Income: $2195 per month,
Expenses: $450 per month, Owner pays for trash, sewer, water, taxes, and insurance.
Tenant Expenses: The tenants pay all additional utilities.

The property has very good cash flow; all lots are occupied at this time except for one and tenants own their trailers.

Rent Roll:
#1 ? vacant lot
#2? $175/mo. 4 mo.
#3? $135/mo >6yrs
#4? $175/mo >6yrs
#5 ? $175/mo >6yrs
#6 ? $175/mo >2yrs
#7 ? $175/mo >4yrs
#8 ? $175/mo >6yrs
#9 ? $175/mo >6yrs
#10 ? $175/mo >3yrs
#11 ? $175/mo >6yrs
#12 ? $175/mo >3yrs
#13 ? $160/mo >5yrs

Well Water: There is a well on the property, but the water to the trailers is city water.
Sewer/Water Line: The Seller owns the main sewer line
Seller also owns the sewer lines underground going to each mobile home. Seller owns the water lines from the city main to the lots. Each mobile home has its own water meter, which is owned by the Seller. The tenant is
responsible for maintaining cleaning sewer lines from their home out to the park’s main line on Pearl… The Seller maintains cleaning the main sewer line. If any of the sewer lines need further maintenance or repair, the park owner is responsible for that.

[Frank Rolfe]

You have 12 lots at $175 rent on average, so the formula for the value would be 12 x $175 x 12 x .5 x 10 = $126,000 at a 10% cap rate. This park has high density (13 units per week) and a low net income. Unless the comps show that this park has a lot of upside in the rents, what is compelling about this deal? Your exit strategy is very difficult -- most buyers want a park that is much larger. If you pay cash for it, your cash-on-cash return is only 10%, which is about 50% of what our standard target is of 20%. You can only hit 20% with sensible leverage and a 5 point spread between the loan interest rate and the cap rate (with this park at a 10% cap rate, you'd have to get a bank loan at 5% interest with 20% down to hit around 20% cash-on-cash).

I have never seen this deal, but my bet is that you can do better with your money. Keep shopping.

Frank Rolfe

MobileHomeUniversity.com