First Mobile Home Park Under Contact

[Rich Ferradino]

I just put a 10 pad MHP on contract in South San Antonio. There are 9 Mobile Homes which are mostly 1990s, and only 4 are currently rented for a total of $2650/mo, 3 vacant,
the remaining 2 need to be repaired, and the last pad is vacant. 3.4 Acres, city water (master meter), septic tank, and individual electric.

The deal financing was $200k, $30k down, 6% interest, for 10 years.

I know the unofficial formula is lot rent x # of units x 12 x .6(owner pays utilities) or .7(tenant pays utilities) x10 (CAP). then you add in the wholesale price of the mobile homes to get to your price

We are planning on renting the land and home as a package deal. Market rents are $800/mo for 3 bed and $700 for 2 bed. With the park being fully rented, we can cashflow $50k/year including the mortgage.

The park has space to expand to 2 more spaces, but I have to check with the county to see if the existing septic will suffice. Thoughts?

[Account Closed]

I know you see the dollar signs on renting those mobile homes but you really need to understand that there isn't much money in that side of the business even with the spread you likely have over your lot rent.  Ten homes shouldn't drive you too crazy, but the types of people who rent mobile homes are very different from those who own.  I suspect that if you wind up owning this park, you'll agree with that statement within 6 months and change your business model.

First thing I see is that Texas can be a little nightmarish with private utilities, especially septic.  Most recent horror stories I've heard on septic have come from those who own parks in Texas.  Additionally, you last paragraph suggests that this park has homes that share septic tanks.  You should understand that you are taking on more risk with this configuration than the typical septic park.  Ask yourself, if I lose one septic, how many homes are affected?  

Second thing is that the "unofficial formula" is pretty accurate and a great way to stay out of trouble in this business.  If it were me, I'd go one step further for this park and call it a 50% expense ratio on the lots.  I would also require much better than a 10CAP to deal with the homes, septics, and economies of scale.

Based on current operations, I would place the NOI on lots at around $7,200 ($300 lot rent). The park/homes are realistically worth about half what you have it tied up for at best. My take may be slightly pessimistic, but I can absolutely promise you that this park will not cash flow $50k per year.