Help evaluating Mobile Home Park and strategy to increase value

[David Hughes]

This is the first MHP deal I have analyzed and would like to hear your opinions about it--

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-104 total sites, 68 owner-occupied, 36 vacant on 3.5 acres

-On city water/sewer

-Lot rent is $310 and at market rate

-Assumable loan of $1,365,000, due June 2019, at 4.9% rate

-Buyer would need downpayment of $535k

-68 lots x $310 x 12 x .6 x 10 = $1,517,760 value at 10% cap

-List price is $1.9M

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If I paid the $535k down payment with a local bank loan for $435k at 6% amortized over 20 years after a cash downpayment of $100k, the monthly NOI, after 40% expenses and debt service (for both loans), would be $10k/month.

The value-add strategy I'm considering is to take that monthly 10k NOI and buy/move in homes until the park is full. If each relocated home costs $10k, it would take 3 years to fill the park.

At the end of those three years, the park would be 100% full (104 sites), monthly NOI would be about $18k and the park would be valued at $2.3M using a 10% cap.

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Questions

1. The list price is $400k higher than the calculated value of $1.5M… likely because the current owner sees the growth potential in the pro-forma numbers. How would you negotiate the price down to $1.5M?

2. Is my strategy sound regarding spending 36 months of NOI to fill the park with units so I can collect lot rents?

3. Would a local bank loan $435k on this deal?

4. Is this a deal worth pursuing?

Thanks, Dave

[Bill Jacobsen]

First, I don't like to pay for potential. I want to pay for what is.

2nd. I don't think the bank would loan if it is not in first place.

3rd. I have been advised that my first MHP should be one that does not need fixing.

4th. It is hard for me to imagine that you can spend only $10,000 per home to place the type of homes you want in your park. You would then be getting rent for the home and lot but you would have greater expense because you would be responsible for the homes.

Can your area absorb 36 more sites? Luck.

Bill

Good