Mobile Home Park Valuation / Purchase

[Jason Graham]

I'm looking at a mobile home park (new to mobile investing) The park has 8 units and owns all the units. Three years of financials shows 61K of gross income and 36K of net after all expenses. I think I'm getting a good deal at 340K but according to the formula above it should be valued at 306K. At a 340K purchase price it cash flows very well...am I missing something?

I just learned about the mobile home investing boot camp. I am interested in doing that but when I went to log on it didn't show any dates or locations. I'm reluctant to sign up if I don't know when and where it will be. Does anyone have any more info?

[Bruce May]

Jason,

Contact Brandon Reynolds. He can give you all the details for the next class, which I think is in South Carolina in September. I highly recommend the class if you want to buy a MHP. I recently attended for the second time and I'm still looking for the right MHP to buy, so by no means am I an expert at this.

As for the park you are considering buying, it really looks like you are overpaying. There are a couple of factors you have to consider. First, value the homes at about $5,000 each or $40,000 total, maybe a little more if they are newer and in really good shape. More than that and you over paying for the trailers.

Next you have to factor in the lot rents. You didn't mention how much the lot rents are, but with your numbers it looks like each tenant is paying about $635.00/mo for rent (trailer & space rent combined). The basic formula is: # of units X 60 X lot rents to give you a basic value at a 10% CAP rate. You shouldn't include the rent payed for the trailer, just the space rent. So if your 8 lots rent for $200.00/mo it would be 8 X 60 X 200.00 for a value of $96,000. Add that to the $40,000 and you should only be consider a purchase price in the ballpark of $136,000, give or take. You might be paying 2.5 times that for this park.

If the tenants pay for their own utilities you change the "60" in the formula to "70". Be careful with septic and wells as well. There's a whole lot more to consider, but know that MHP's are not the same as other asset classes.

Good luck, Bruce