MH Park Analysis

[Celeste Fackrell]

Hello all,

I am considering investing in my first MH Park.  It is a 17 Pad site with 10 PARK OWNED homes.  8 of these 10 homes have been completely remodeled in the past 6 months; a nice job remodeling without being extravagant.  The other 2 homes are on-site and will need roughly $7k of remodel each to make them Rentable. This park is a plane ride and rental car away from me so obviously not perfect.  There is a local manager/handy-man that  has done a nice job for the current owner.

There are 9 pads rented at an average of $170/Pad plus all 8 remodeled homes are rented at an average Rental of $250/month in addition to the pads.  Total current monthly income is $3,500.  

Pad expenses, including the total burden for park taxes, insurance, utilities (city water and sewer paid by the tenants), property management, my travel (6 trips/year @ $500/trip), snow removal, mowing, small advertising, signage, and road maintenance budgets. Expenses total about $900/month for a total NOI for the pads alone to be $7,000/year.

As all the current homes have been very recently remodeled (gutted), home expenses are estimated at  $100/month/home for deferred maintenance into a Maintenance and Repair budget; total home expenses  - $800/month.

All totalled: the NOI as it currently stands is $22,000/year.

I can buy this park, and the homes, for $200,000. The Owner is willing to finance 100% of the purchase price at 6% for 15 years. My debt service would essentially be equal to my monthly NOI. There will be no early payment penalties.

If I close this deal; I would spend money to remodel the remaining 2 homes on the property ($16,000 remodel costs) and increase my NOI by roughly $600/month when these two homes and lots were rented. Once these 2 remodeld homes are rented, and equilibrium , established, I would either rent the remaining spaces to other home owners or buy and rent more homes to fill these spaces as the marked demands. Over time, I would sell off each of the homes so that in a few years, I will own the park out-right, I own no homes, and I have 15 +/- lots rented for my goals of long term passive income. (if I don't sell it off before for more money in a 1031 exchange for a larger, more lucrative park. I am investing for passive income in 10 years. Cash flow is not important to me now, as long as I'm not writing a check each month for this park.

OK all you Mobile Home Park experts: What do you think?

*   $200,000 purchase price

*   0 money down

*   6% interest on a 15 year note (worst case)

*  Expenses accounted for including $100/month/home in deferred maintenance savings (on newly remodeled homes)

*  10% Cap Rate

*  Monthly net income before financing = Monthly debt service (1.03 Debt Coverage Ratio)

* Large, manageable upside with the opportunity to add 9 more pad and/or home purchase and rental. (Potentially, another $24,000 NOI on the upside.

Honest opinions?  Any advice to offer?  

Thank you!  Sam

[Curt Smith]

>>My debt service would essentially be equal to my monthly NOI.

And you'll be not getting any positive cash flow for the term of the financing?  So why would you consider buying this deal when it's a plane and car trip away?

Parked owned home parks means you will be spending a day or more each 1st of the month cajoling rent out of the renters, evicting, fixing, replacing appliances etc.   

Ask the current owner where he buys used appliances and how many refrigerators / stoves he buys.  This is a trick question to get him to admit how much renter MIA and theft of appliances this park has.

Investors want Debt Service Coverage Ratio of 1.6 or better, 1.8 is a better target with a starting DSCR of 2.0 Meaning only get into deals where debt service is 1/2 or so of the NOI. Positive cash flow. Why else invest in real estate, else just buy a bond fund. LOL

Shoot for Cash On Cash of 20% or better. COC is free cash flow after debt service:

free cash flow / total cash at risk which is the down payment.

You can fix the COC of this deal by changing from 15 year amortization to 30 yr am and 15 yr balloon at 5%. Debt service is $1073/mo, which is a DSCR in the desired 1.8 or so.

The only plus is zero down.  That's a red flag isn't it?  LOL

I'm in a group looking to buy MHPs.  I'd definitely pass on this deal.  Small parks, 25 pads or less are very difficult to make money on when you don't live in the park as a owner/occupant.  Else you're having to give up a POH rent to pay a local manager.  In this tiny park's case, loosing a home rent is a big deal.  POHs are difficult in the first place.  Read other park threads.

You didn't mention who owns water pipes if water is included in home rent?  Who owns the electric poles and wires?  Better not be any gas in this park.  Even propane is a problem.  Gas furnaces rust and get to be dangerous and a park owner never wants to own the gas pipes.

Move on is my view.