Out of the blue mobile home park potential purchase...need basic help

[Nicolas Franckenfeld]

Apologies in advance for a question that has likely already been asked/answered but I need some quick general guidance as to questions I should ask a potential seller of a MHP. I am meeting with him Friday morning.

Here is the background:

I am a very experienced SFH investor. Never have done a bit of research into MHP investing until now. However, I grew up in the Mobile Home business (family members did sales lots, service, manufacturing) Again I know relatively nothing about parks as investments.

This deal was connected to me via word of mouth.  Seller wants out, after 20 years, as he plans to use the money to build a few small apartments on some vacant land he owns in another town. He says the park has been a "gold mine" to him and his family....whatever his definition of that may be.

Property details:

Asking $218K

10 acres just outside a small town of 6K in the central plains part of US and on the outskirts of a larger .5 million metropolitan area. The property itself is about 2 miles "out in the country" from this small town. 3 miles from a "Super Walmart" :)

23 current mobiles (100% occupancy - but room for more pads)

• 16 are lot only
• 7 are 'owned' by the tenant with mortgage payments to the owner.
• 0 owned by park

I asked him to send his financials and he emailed me a scanned list of the receipts from last month.

• $3750 lot rental
• $2125 mortgage payment receipts
• $5875 gross rev/mo.

A rough estimate of an undeveloped acre of land in the immediate area is about $5K per acre.

No expense information yet, so obviously that is in my list of questions/due diligence.

I know his taxes are <$800 year.

Gravel roads

New DEQ approved septic system

County services (not the nearby town)

What are the questions I need to be asking at this initial meeting?

And as a further step, what kind of numbers should I be looking at for MHP investing that will help me determine a purchase price?

Cap Rate >15%? >20%??%

Monthly gross income/total acquisition cost > 2% higher?

Gross income multiplier <?

New DEQ approved septic system

Again, what types of numbers should I be looking to find answers for and what are those general targets given what little information I am providing?

Thanks in advance.

[Jefferson Lilly]

Nicholas -

Before you buy a MHP you really, really need to get educated first.  Attend Frank & Dave's bootcamp.

Also, although no substitute for a weekend-long Bootcamp, take a listen to my podcast here on BP: http://www.biggerpockets.com/renewsblog/2015/02/26...

But a few thoughts:

* Odd that the park is 10 acres but only has 23 pads.  Most MHPs have a density of 10 homes/acre.  If you've got 10 acres, you should have a 100-pad park.  So are the lots very large?  Or is the park 77% undeveloped?

* Don't develop vacant land.  It has no value to you and is too expensive to develop and then buy mobile homes to buy and bring in.  MHs can not (usually) be financed, so you'd have to come out-of-pocket to acquire homes.  

* See if you can reduce the purchase price and let the seller keep the vacant land.

* Septics only last about 25 years.  We tend to stay away from them and only purchase parks on city water and sewer.  For your first park, I'd recommend likewise.

* The poor home conditions are a big red flag.  Your park is out in the middle of nowhere and can only attract low-quality renters.