Mobile Home Park, Deal Or Not?

[Tommy Vise]

I have an owner who is looking to get out of her Mobile Home Park.

She has NO Rent Roll or contracts that the tenants are on, just month to month agreements.  Let me give you the numbers:

19 Lots

17 Occupied 

7 park owned homes

$100 per month per trailer = $1000

7 park owned = $2650

Total of $3650

Mobile Homes are in OK condition, could use a little work but none is too bad.

All tenants pay for water, gas, electricity, sewage.

The road through the park is paved and I have to keep it up.  

Each is individually metered.  

Asking price is $210k for the whole thing.  

NOI= 3650 x 12 x .7= $30,660

NOI/Sales Price = $30,660/210,000

Cap Rate =14.6%

Positive things with this park:

1.  The lot rent is low.  Can be increased immediately.

2.  There is a vacant trailer in the park that needs about 2k in work that can be bought for 3k.

3.  The mobile home park can be made much nicer with some improvements, painting of MH, upkeep of the road.

4. Near the river.   About a mile to the nearest boat dock. 

Negatives:

1.  Older septic systems

2.  Road is getting bad, needs work--10k Maybe??

Is this a good deal??? Any suggestions?  

Thanks for letting me know.

Tommy

[Russ Wallace]

Tommy, based on my experience a MHPs income and expenses are only one part of the puzzle; the property’s physical characteristics require thorough investigation as well. In order to develop a clear picture of the property, I suggest the following inquiries:

Check the park owned homes (POH) status. Does the seller have clear titles? Do the titles match the homes? If any are missing, what’s the procedure/cost for getting one issued? Are the POH all 3 bedroom/2 bath models? Do they require interior/exterior remodeling in order to increase the rental rate? Does the HVAC unit, roof, etc have any remaining life left? What’s the mfd date of the POH? Are any too old to be rented (check the jurisdictional authority’s (JA) Unified Development Code or Land Development Code for language specifically addressing mobile homes and MHP)? Are there Certificates of Occupancy on file for all of the POH? Can the JA confirm the installation was approved/permitted?

Investigate the water/sewer systems. When were they installed? What are they made of? Are there “as-built” plans on file? When were the distribution lines last scoped/inspected? Are the POH on individual septic tanks? What size are the tanks? What’s the maximum number of tenants allowed for each POH based on tank size? What do the most recent environmental inspection reports tell you? Are there deficiencies that the JA wants resolved? Have there been any recent discussions at the departmental or executive level of the JA regarding a mandated assessment for public utilities improvements?

Clarify the property characteristics. Who owns the roadway and what is the maintenance standard? Is there a recent survey on file that specifies private road ownership? If a local JA governs the maintenance standard, what is it? What are area roadway/paving contractors cost estimates for repairing the road? Have there been any recent discussions at the departmental or executive level of the JA regarding a mandated assessment for public roadway improvements? Does the property drain well or have standing water after it rains? Can the park be improved without triggering new JA regulations requiring more recreational space or larger home lots?

Determine the area "market rate". What's the local area HUD 3/2 and 2/2 Fair Market Rental Rate? What are comparable MHP lot and 3/2 or 2/2 POH rental rates? Do the comparable parks look better or worse than the subject property? What amenities, if any, do the parks have? Do the comp parks have any vacancies? What are the local B and C class apartment property 3/2 and 2/2 rental rates? What are the rental rates for 3/2 and 2/2 single family homes, apartments and mobile homes advertised in the local newspaper and on the web? Does the county Housing Authority have any Section 8 or VA subsidized tenants needing rental housing; if yes, what are the 3/2 an 2/2 rental rates? What do they require/look for in qualifying a rental unit?

Understand the market demographics. Is the county population growing or shrinking? Are the number of renter occupied homes growing or shrinking? Is the county unemployment rate growing or shrinking? How do all of these metrics compare to your state and the nation?

Compile a parts list. Make a spreadsheet of items required to remodel a POH inside and out (doors, windows, appliances, cabinets, flooring, roofing, siding etc) with the distributor’s name, their part number and item cost. You’ll need this to accurately estimate the cost of improving a POH.

Confirm the income & operating expenses. What info can the current property owner provide? Can it be confirmed? What rent amount do the tenants say they’re paying? Who pays for trash removal, street lights? How much were the last three years property tax bills? Are property taxes stable or increasing? What does a property liability insurance policy cost? What does insuring the POH cost? What are estimates for lawn/landscaping maintenance, clearing snow from the road, etc? Will you self-manage the property or pay for someone else to manage it? What do local plumbers, electricians, HVAC techs charge for service calls?

Finally, I don’t add anything to the property’s value for POH, infrastructure, amenities, etc. I’m buying the property for cash flow, not the land, homes etc.