This seems like A good deal...What am I missing?

Question

All:

I've not done any MH investing and wanted to get some feedback on this deal near Columbia, South Carolina.  Seller is old and is looking to get rid of his properties so he can restructure his debt and pay off his primary residence and eventually retire. He personally maintains all of these properties and said he's interesting continuing to be the handyman, if I will agree to it. 12 of the MHs are within one block of each other and the other 7 are on the other side of town.

Properties: 19 Total; (One lot w/ 3 MHs, Two lots w/ 4 each, One lot w/ 1, One lot w/ 9 MHs)

Age:  Almost all are 1960's MHs

Purchase Price: $280,000

Financing: 75% 1st Mortgage (hopefully) from Credit Union of $210k; 5%, 20 Year Am, 5 Yr. Balloon

25% 2nd Mortgage seller held 0f 70k; 5%, 20 Year Am, 5 Yr Balloon

Current Rent: $8,900

Est PITI Payment: $3,300

I realize because of the age of the properties, I will get destroyed on maintenance. They've had some septic work and, will verify, but believe all properties are on city water. A few pitfalls that I'm aware of are:

-May have difficulty selling this one day because of the age of the MHs as banks don't like old MHs

-Septic issues

-Maintenance issues (I think having the owner stay on may help this cost)

-Finding an insurer to insure these.

This still seems like a good cash flow deal to me. Anybody have any other things to think about? I believe I have a Credit Union that will finance 75% on it and allow me to have a seller carry the second back.

Thanks for looking!

Bill Ayers · Answer

Don't forget to ask the city/county if you are able to replace the old homes with new ones as they need to be "retired".  Some areas change zoning and do not allow homes to be replaced once removed.

As far as pricing, personally I would add very little on top of the valuation of the land to account for the purchase of the homes. And by very little I mean $500 per home. They are super old and are only worth very little if they are all in great condition... which I would find unlikely. Of course, the ones with cash flow would be worth more.

As is, to me, this seems like a deal that if all goes perfectly (which it never does) it could be an ok deal. In mobile homes great deals are everywhere if you know how to find them and understand the market. So, do not be afraid to make a very low offer. It sounds like he needs to sell it a lot more than you need to buy it. In my estimation, small lots like this are very difficult to sell due to a slew of different reasons. So just be wise and patient.

Naveen Kumar · Answer

Looks like a sweet deal. Here are a few things I would strive to do to make it even better:

1. Get the properties appraised

2. Get the repair cost estimates from at least 3 contractors to make sure you know what you are not getting 'destroyed on maintenance'

3. Factor in the repair cost, and make an offer. It will totally depend on the seller's motivation to sell.

4. Line up a lender so you can refinance in 6 months

5. Put HML and cash to buy the property for the 'right' price

6. FIx the property, and then refinance, pulling as much money out as possible.

Keep use posted.

Luis Trujillo · Answer

I agree with Rachel on this one. Rachel, let's connect it looks like we're in the same niche. :)

Rachel H. · Answer

Since the homes are so old, I'm not sure if I'd count those properties in your offer. If you do, then figure in a minimal number. The lots are probably more of value than anything else. Good luck with your deal!

Greg H. · Answer

Seems to me you are buying an income stream with owner financing.  I would doubt the value of the lots and the old MHs is close to $280K.  The cash flow is also based on the owner making all the repairs so I would also re-access the value of the stream with an outside service doing the maintenance

Naveen Kumar · Answer

@Will Gaston

I would suggest you at least get it inspected and see what the worst case number would be and then reassess.

I would reevaluate numbers - if you bring in $8900 per month, and have to allocate the recommended 50% in expenses, and $3300 in PITI, you are bringing in $1150 with so many properties to deal with.

Account Closed · Answer

With any mobile home park or lot deal you need to look at the ability of the land to continue to produce an income. An empty lot or a lot without a home is a net liability. In these type of investments it's the mobile home that causes the lot to produce income. The lot doesn't know if the trailer that is sitting on it is a 2017 model or a 1967 model. Often the lot rent is the same. Which home will likely produce income for the most years with the least expense and hassle? The 2017, of course. 60s mobile homes have Aluminum wiring and are fire traps. They are often small with bad floor plans. They require a tremendous amount of maintenance and will only attract marginal tenants. They are far past their practical lifespan and are being healt together with duct tape and a prayer. Replacing them with newer models isn't practical considering the drastic decline in single wide production and the resulting shortage of good used late models. IMO. This property is worth only the raw value of the land

Christopher Bunge · Answer

Some parts of the county will let you replace an old MH after it falls apart but they give you a short window to do it, often 60 days. And when you do decide to replace a single-wide the only permit they will grant is a double-wide which are far more expensive. Will, there are narrow and specific rules that apply to different localities so get educated about what happens when you have to tear one down.

Lots of these are also on well water and septic system.

Chris

Curtis Thomas · Answer

@Will Gaston What part of Columbia are they in? Have you visited the county website and research the address? If you are willing to pay that much for MHs, how about you get a house at a cheaper price.

Do you realize that the county now has an ordinance in which you can only have one mobile home per lot? Therefore, I doubt you will be able to replace a mobile home if you have more than one on a lot.

Naveen Kumar · Answer

@Will Gaston  - I would do the following:

a. Look for a lender that will do a commercial loan for more than 75% LTV on the land.

b. Ask the seller to carry a note on a lower valuation.

Remember - the numbers have to make sense - don't bank on appreciation or equity in that market.

This seems like A good deal...What am I missing?

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