First MH De

[Tim White]

Repost from buying and selling forum. There is an opportunity to obtain a mobile home park but not sure it is a good deal. Have $200,000 for the deal and will need to borrow $60,000. The park has 11 mobile homes on it with 10 of those occupied by long term tenants. Rents are $400 for 10 of the 11 with the 11th being a lot rental of $150. There are pads to add 9 mobile homes at a future date. Taxes and insurance is right at $3000 and $1200 annually. Property management is $200 per month and typical expenses tend to average $400 per month. Checked septic and electric and they checked out fine. Should this deal be a pass or a take? I know you don't have all the info but just looking at the cursory numbers what do you think?

[Curt Smith]

Hi Tim,  There's many park analysis done in this form in the recent months.  Read through the past posts here.

Park value is a function typically and from a buyers perspect based on the lot rent only.  Read up on why ignore the difference between lot rent and home rent.

11 pads x $150 x 12 months x 0.7 (30% expense ratio for a lot rent only park) / 0.12 (std cap rate for parks is 10% but very small parks should be higher cap rate like 12%)

My off the cuff park value is:  $115.5k

BTW this is what a park appraiser working for the bank will do (with a lot of hand waving and fanefare in between, then resort to the above formula). 

#1 problem with small parks, less than 25 pads.  How to manage them.  Typically the current owner lives in the park or very close.  The buyer will need to as well.  :)

#2 problem with small parks.  The typically have to be sold via seller financing.  NO BANK will finance a commercial deal this small or weak financials.  As a result of seller financing the price financed is way too high.  Meaning at the end of the typical 5 yr balloon the buyer is stuck not being able to REFI out the underlying debt without bringing cash (some times a lot of cash) to closing.  because the bank uses the above formula and comes up with a drastically lower price they'd finance than the naive buyer accepting seller financing bought at.     The solution though, is often the seller takes a haircut to get the note paid off.  Or they may balk and extend the note another 5 yrs.  Youi've paid way too much in interest and debt service in the mean time.