Mobile home park deal analysis

[Kevin T.]

Hi everyone,

I'm a new MHP investor and I'm looking at a deal now and wanted to get some outside input on the numbers to see if there's anything I'm missing or need to consider before putting in an offer.  Here are the key data points:

Park info 

• Located in Alabama
• 61 lots
• 25 owner occupied homes
• 18 park owned homes (14 currently rented; 4 currently being repaired and should be rented soon)
• 18 vacant lots
• Avg lot rent - $160 (unknown what the market rate is but it doesn't sound like there has been a rent increase in at least a year, maybe more)
• Avg POH rent - $400
• Expense ratio - seller claims 26% but I'm estimating 35% for the lots and 50% for the POH's
• City water - individually metered
• Septic - good condition (allegedly); a couple were pumped last year, none this year (no lagoon thank heavens)
• Seller claims gross income $130k, expenses $30k, and NOI $100k
  • I calculated gross income of ~$135k, expenses of $60k (55% on POH and 35% on lot rentals), and NOI of $75k

Other info

• Mom & pop seller, but park is listed with a broker
• Park has been on the market for > 3 years (recent price reduction)
• Greater metro area stats look good
  • Population = 115k
  • Median home price = $105k
  • Unemployment < 8%
  • Household income > $40k
  • Housing vacancy ~ 15%
  • Closest Walmart is 7 miles away
  • Freeway is 1.5 miles away

Numbers

• My valuation is coming out about $80k-$100k under the seller's asking price
• With conventional financing I'd be hoping for a purchase price of $500k, $100k down @ 6% over 20 years (not sure if this is plausible or not)
• Assuming that financing, I'm expecting net cash flow of $40k (after debt service)
• Upside potential is in raising rent and filling the 18 vacant lots
  • Following the same assumptions above, raising rent $50 (if the market supports it) would change NOI to ~$90k and net cash flow of just over $50k
  • Filling the vacant lots could potentially increase gross rent up to somewhere between $150k-$200k, depending on what the appropriate occupancy rate is for the area

Without verifying any of the above information (haven't offered anything yet so there's a lot of DD left to do), the deal seems to make sense.  Since I haven't been through this before, I'm sure there are other factors I'm not considering which is why I'm putting this out here to see if anyone wants to weigh in and point me in the right direction?  Does this look like a good deal (assuming the data checks out)?

Thanks for any input

[JC K.]

I like the upside given the high vacancy rate. However, you need to make sure demand is there. Call nearby MHPs and ask them about lot rents, vacancies, etc.  you may even find a better deal in doing so. 

look in Craigslist for rent ads. 

Some of the demographics you shared don't look good to me, but you need to convince yourself.   

I would dig more into "four homes being repaired."  It wouldn't surprise me at all if these have been vacant (not repaired) for a long time. 

Offering $100K under asking price is not a problem in my book. 

Biggest question mark in my head is why hasn't this sold in 3 years.  Talk to the manager. 

Look at older aerial images in google earth to see if the park had more MHs in recent years. 

If you intend to add MHs, you need to make sure you have funds to make that happen.  

Consider drafting a letter of intent even if you never send it. Taking this step will push you to really get going. 

Best of luck!