Evaluating Mobile Home Park just north of Houston

[Clyde Myers Jr]

Found a MHP just north of Houston and it looks like a deal.  9-space park, city water/sewer, 4 units are park owned @ $680 each, 4 are tenant owned @ $175 each, 1 needs full remodel and is park owned and vacant but salvageable.

$125,000

3 of the park owned were just placed on site and are therefore empty but available for rent as of last week.

Any thoughts?

[Curt Smith]

Evaluating parks by a formula is in other "evaluate my park" threads, just FYI.

Patrick is right, these small parks are only manageable if you live near by or turn over to a management company which has it's own risks.

$175/mo lot rent is way way too low.  I searched in craigslist for houston:  "mobile home park" and $350 lot rent was found.

Commercial properties are priced based on current cash flow.  IE empty homes count zero except for the intrinsic worth of a mobile home.  Use criagslist and you'll find single wides going for $3k-$6k each.

Park owned income is assumed to be at 50% expense ratio, lot rent income is figured at 30% expense ratio.  Meaning take all park owned rent and multiply times 0.5.  Take lot rent income and multiply times 0.7.

(#lots) x (rent) x (expense factor) x 12 months = NOI

Divide NOI by the offering cap rate, which for such a small park should be as high as 15% (divide by 0.15). Going cap rate for a decent sized park that's well run is 10% these days. Super large parks are being bid up to insane cap rates much like large appartment buildings, down to 6%.

Now for the park owned homes, add in the intrinsic value, in your case $3k to $6k each.  POOF:  this is the offer price.

That seller is in a bad spot with no income from those new MHs.  I'd only offer on the actual cash flow based on the above forumula and only if you have a way to manage them.  He'll drop his teeth with such a low offer, but just say:  "I only pay for actual cash flow".

I never buy in a new area without putting up test ad in craigslist.  No address and a stock picture of a mobile home.  I test a much higher price than I expect to rent at.  You must get 2-5 calls a day.  You may not get many calls at the beginning of the month.  Most low end renters ponder moving in the 3rd and 4th weeks of the month.  Ask what their jobs are, take home per week etc.  Get to know the prospect tenants for that area and how long they plan on staying.  Steer clear of Fair Housing issues, but income and length of stay are ok.