I might have a deal buying a mobile home park, How to start?

Question

I am new to real estate investing and still have not made my first deal. The market in Idaho Falls and Rexburg area has been rather difficult to find any deals the conventional way. So, during my search for creative ways to make deals a friend mentioned that his landlord, at the mobile home park where he lives, wants to retire and sell his park. I am extremely interested in talking with him about possible seller financing or other options that might benefit us both.

I have tried to read as much as I can from John Fedro because he seems to be the master at mobile home parks but there is just too much. So my question is, where should I start? I want to be as informed and ready as possible before approaching the owner of the park.

Are there any articles I should read or advice that might help me?

By the way, all that I know about the park at the moment is that he thinks he wants about $1M for it, there are around 50 mobile homes, it looks like there could be room for 20 more units,  it is a nice community, and lot rent is currently about $200/mo.

Frank Rolfe · Answer

Right off the bat, I can tell you that the property currently will probably not support a $1 million price. The basic formula would be 50 lots x $200 lot rent x 12 x .6 (I'm guessing that the property owner pays the water/sewer for the tenants) x 10 = $780,000 at a 10% cap rate. The only wildcard would be the homes, which would have to be worth $4,000 each to make up the difference but, regardless, the bank appraiser would not include the income from them, anyway.

However, the big question is what the market lot rent is. If the comparable rents show a market of, say, $300 per month, then you might well be able to raise the rent significantly enough to come closer to his price.

There are five key items in determining the value of a mobile home park: 1) the infrastructure 2) the density 3) the economics 4) the homes and 5) the location. I don't know any of the facts on 4 of these 5 categories, but that hopefully will get you started in thinking about the deal correctly.

Jeffrey H. · Answer

@Ryan Andersen the most comprehensive guide to understanding, purchasing, and operating mobile home parks is from the Mobile Home University website (coincidentally authored by Frank and his business partner who responded to you earlier - he's not a self-promoter on BP so I will happily do it).  They have both a Due Diligence Manual and also a Home Study Course.  I have purchased both and would say they are amazing materials.  Combined with their forums, templates, and continuous support they're very good value.

If you're hungry for more after that MHU has several boot camps per year around the country.

There are other groups putting out podcasts, forums, and groups for MHP owners and enthusiasts and you should check each out to find the ones that seem to address your needs.

MHP's are complex animals and it takes time to get to know all the different aspects of them.  Take your time and be patient.  And last but not least have fun!

John Arendsen · Answer

For me any type of passive income investing in MHP's is predicated on the following:

• Vacancy
• Age of the homes
• Area demographics
• Infrastructure
• Amenities 
• Most importantly is the park in the "Path of Progress"?

I always do a history on the area to make sure that it's not in an aging or blighted location. So many of these communities are aging and even failing. That's why they're usually for sale.

Lastly, as @Frank Rolfe so aptly stated "If the comparable rents show a market of, say, $300 per month, then you might well be able to raise the rent significantly enough to come closer to his price".

Where the former owner leaves off you begin. His rental price point suits his cap rate and ROI but not yours. Your's will have to be re calculated and increased accordingly to positively impact your ROI and cap rate.

This is where most MHP investors fall far short of the mark. In order for the new owner to be profitable they MUST raise the rent and that's where potential challenges may begin. If you raise it disproportionate to the tenants ability to pay it they may bail and then you're dealing with increased vacancies.

Curt Smith · Answer

Franks the master and gave the price a bank appraisor will arrive at.  Buyers and sellers can agree to anything,,, then the bank and its appraiser sets the real price it'll trade at.

Frank used lot rent (not home rent) and used 40% expense ratio (0.6) which gives a reasonably low offer price.  Then meet in the middle.

Sellers always ask an unreasonble price that's why its called "asking".  Offer $780k and show the math for arriving at that price.  Mention this is what a bank will do as well.

BUT you need 30% of the purchase price and more importantly credibility that you can run this park.  In commercial banks screen buyers for being credible that they won't run the commercial deal into the ground...  You can take Frank's boot camp at mobilehomeuniversity.com,  find other park owners in the area to partner with.

BTW:  re finding deals in your area.  There's always deals and sellers.

- Buy a direct marketing mailing list from kent Clothiers find motivated sellers list and mail to owners who don't yet realize they are sellers.

- Call all the craigslist.org for sale by owners.  These folks have already said they have real estate forsale.

- Put up bandit signs, but use a google voice number.

- door knock on FSBO signs in yards.

- door knock neighbors of vacant homes to find the owner.  Use missing persons search for the owner listed in the tax assessors website.

Read in the BP marketing forum!!

John Arendsen · Answer

I might also suggest that if you're new to investing in RE let alone MHP's you may want to consider partnering with an experienced MHP investor/owner/manager. You may not get the ROI at first. But what you fall short of there will certainly be made up for with hands on.

Laura Taylor · Answer

If you are new to investing in Idaho I must make sure you know what we just found out.  You must be a real estate agent to do anything in Idaho.  Please check out the "The Real Estatement"  (a news letter from the Idaho Real Estate Commission) and find out what the laws are.

https://indd.adobe.com/view/346fb124-dc32-4191-a1e7-487f772c03ee

You can be fined, put in jail, and required to take their classes if you don't have a license and insurance from them.  The Idaho Real Estate Commission motto is "Protecting the public interest in regulated real estate transactions" and Idaho is very regulated.  If you know all of this good luck to you.

Curt Smith · Answer

@Jeffrey H.  I agree completely re Frank's $1500 boot camp AND 30 day DD take home course.  I bought the 30 day course then went to boot camp and the rest of our park buying team went as well.  There is no substitute for Frank's MHP boot camp.  In a pinch buy the 30 day DD and use the contact to make an offer.  We did this for our park.

For beyond beginner questions, the free forum on mobilehomeuniversity.com is where I post complicated operational questions.  Nothing but park owners on that forum.

Jose Sarabia · Answer

I think you could easily raise the lot rent to at least 325.00 depending on the area

I might have a deal buying a mobile home park, How to start?

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