Small Mobile Home Park - Does it Make Sense?

Question

Reposting from deal analysis forum section.

I do not want to create a new topic in the forum because my question is related. I went to the MHU boot camp and I understand why 30+ units park makes sense. However, does it make sense to buy smaller parks (10+ units) if you can get it in the great area and with the high cap? I do not want to burden you with the details. I just want to hear your opinions. Thank you.

Account Closed · Answer

@Andriy Boychuk

Any day of the week including Sunday.

Ultimately it will depend on your goals.

Let me flip this back to you .  Say you find a 24 space park , 22 occupied 2 park owned homes, 20 tenant owned homes.  Lot rent 200.  Market lot rent 240. Tenants pay their own water.  Park owner wants 325 k.  He will finance if you give him 30 % down. Would you take that deal?

For me it would depend on where the park is located but that looks like a potentially good deal on the front end.

and @Curt Smith, I didn't even have to go digging through a dumpster to figure that out :)

But thats the surface, there are a lot more questions, what is the type of park, well run? zoo? etc those are all supplemental questions.  What is the location of the park, can it be integrated with a manager of another property, what are all of the moving parts, what are the risks, what is the commitment etc. Will you end up being the manager; these all revert back to what your goals are and will this bring you to them or not.

There is a lot of big money chasing larger deals and the demand is often times reflected in the pricing.   I do feel that the  returns have to reflect the additional risk and uncertainty on your future exit.  I have also seen these deals to get financed through banks, you are just going to have to do a lot of knocking on doors .

Paul Stout · Answer

I am of the opinion that any deal can be "worth it" as long as all of the good outweighs all of the bad.  You have to do some soul searching to decide what return you absolutely have to get and what your criteria for a park are.  Once you determine that you will have a control to work from.  From there draw a list of pros and cons and put a weight to each.  That being said, I don't think any small mobile home park deal is worth it unless the cash flow can cover any worst case scenario.  Evaluate the deal as if everything in the world that could go wrong did.  If it still makes sense then go ahead.  The market should be a huge driver here.  Since you have less sources of income you want to be sure that this con is outweighed by the pro of knowing that nothing will sit vacant for long.  In the end it is up to you to make sure it is right for you.  I would buy a 10-20 space park near my home in a great market if it had public utilities and was selling at a 20 cap. I would probably not buy a 10-20 space that had private utilities unless it was something ridiculous like a 100 cap.  In fact, I had a park under contract to purchase and it had 13 pads and was under contract for a 25 cap.  After the due diligence was completed I walked away because of the private utilities.  If I cant sleep at night then no amount of money is worth it.

Andriy Boychuk · Answer

I see all your good points. Honestly, the park does not match my investment goal. It is attractive because it is extremely affordable but I understand if I jump on the shiny object now, I might suffer later. I will continue "hunting" for bigger parks.

If somebody is interested in the park, please send me PM and I will forward it to you. It is in North Huntingdon, Pa. 15642. Fully occupied. Private utilities. I have no affiliation with the seller.

thank you very much for your input

Account Closed

Jeffrey H. · Answer

I am looking at a 30 pad park right now with well and septic.  In general I agree it's less desirable than city utilities, but with the greater risk also comes greater reward - if you're careful and do your diligence, get a game plan together, you can negotiate a price to reflect that and find upside.  This one has a MUD at the southern border of the property I am trying to see if will allow a water / sewer tap sometime in the future or for redundancy / emergency purposes.

In Texas and many other states you can pass along the submetered (or allocated) costs of private utilities to cover the cost of the service - the risk is really about the capital costs (hence diligence), and less about run & maintain if you're doing that properly.

My point to all this nonsense is that you're already taking on additional risk by evaluating a smaller park, you might as well keep private utilities on the table if they're in good shape, you can get comfortable with them, and use it as a negotiation point for instant equity / further upside.

But I can see from your story @Paul Stout that the existing septic there looked like a big problem, and for a small Park could make the entire economics go sideways.

Ken Rishel · Answer

Normally, I do not like parks that cannot support a full time manager of some quality.

That said, I am actively looking for one right now of 20-50 spaces to use for a lot of things besides just making money. It is not that I am not interested in making money with it, but I have some goals beyond that. In part I am going to conduct some experimentation in whatever I buy - assuming I can find the right one -that will benefit me in other ways.

Criteria:

• It must be within a 50 mile radius of Springfield, Illinois - but not in Decatur, Illinois so it will be easy driving for me to visit on a regular basis;
• I have to be able to buy it right - no inflated prices;All the due diligence must give good answers
• All the due diligence must give good answers
• All of the lots have to be large enough to accommodate a 16x80;
• It must be on municipal water and sanitary.

• All the due diligence must give good answers

I know they can work for a buy and hold - I am very skeptical about serious home run resales however. They really can't be third party managed effectively so close counts.

Curt Smith · Answer

I would buy a small park as like Paul if public utilties AND all tenant owned homes, even if several hours away.  Tenant owned homes tenants can be trained to use rent payment systems that automate collecting rent.  A lawn service and your done.

Park management's main source of problem is with park owned homes and the lower class of renters that often rent.  But up in NY this may not be the case as it is here in GA.  The amount of alumunum cans that park renters generate is amazing.  Maybe NY park renters don't drink or do drugs or have brawls at night.

You can tell some about the park by digging through the dumpster, looking at the trash around the homes.  Look for dirt bikes, 4 wheelers, ninja bikes, loud trucks, trash and 24 oz beer cans laying around.  Of course parking and just hanging out and talking to folks is smart too.

Bill Devola · Answer

I mainly replied to this thread to laugh at what @Curt Smith had to write.  Hilarious and vintage.  Ahhh...when you describe in detail what you look for as a real estate investor it can seem so absurd, but this is our lives.  No matter what we're investing in.  The down and dirty detail matter.

But as long as I'm here I'm going to agree with the larger points from @Jack Baczek & @Paul Stout  had to say. I've said this before and I'll say it again...looking at a deal from such a measurable perspective such as # of units, cap rate, city, amount of work etc is too rigid a way to evaluate a deal.  Well, at least for a 3rd party to evaluate it.

There's so much else that factors into a question like this.  Whats your age and your short/long term goals?  Is there owner financing, or will you "shoot your financing wad" for the next 18months if you do this one smaller deal?  Is the area appreciating?  Is there room to expand the number of pads?  The list could go on.

People that have these general rules they pass on probably have them for very good reason.  It just may very well be the reasons they have for those rules aren't applicable to your situation, desires, or limitations.  Evaluate each deal on an independent basis and consistent with YOUR experience.

Bruce May · Answer

I've considered a smaller park but only because it was close to me and I was able to drive there in a day. Ultimately, I and the seller couldn't agree on a price. So, in addition to what everyone has already said a small park would have to be close to me so I wouldn't need a full-time manger to operate it.

Sean Kremer · Answer

Not money for nothing though ....

Sean Kremer · Answer

working well for me

Small Mobile Home Park - Does it Make Sense?

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