What should I offer on this mobile home park in Maine?

Question

I have had my eye on a mobile home park here in Maine. Finally a few days ago I decided to look up the owner via tax records and gave him a call. Turns out, he was thinking about selling, but hadn't had a chance to list it yet. I am meeting with him next week. I received some initial information from him, but we are going to discuss price and other questions I have then.

Here is what I know:

20 pad site

9 lots rented (8 lot rent only, 1 park owned)

city water and sewer (a rare find for rural Maine)

lot rent is $250

Water is not separately metered, but is split evenly among the tenants

Yes, vacancy of pads is high, but I think over time I could fill these. Marketing around here is not good. There are three MHPs in this town all about the same size (though the other two are full). You can't find a phone number on google for any of them, let alone a website. One of the other parks charges $295 for lot rent, the other I cannot find info on.

I've listened to Jefferson Lilly and Brad Johnson's Park Street Partners podcast and received some great tips. He did a quick evaluation of what a park is worth by considering a 40% expense rate and a 12% cap yielding an offer price of $135,000 (27,000 lot rent only *.6/.12)

Any thoughts? Is this a fair price to offer?

Ryan Groene · Answer

That is probably a fair price to start with, not sure if hell take it, but you never know. I would assume a 50% expense ratio because your lot rent is still below $300 mark and the % to run a smaller park is very comparable on a per lot basis up until the 75-100 space mark and/or you have over $400 in lot rent.

are you going to manage this thing your self?  and do you ever plan to move from the area?

if you answer yes to either of these questions, consider that your time is worth money and what is your exit strategy. IF you dont' ever plan to move further than a 3 or 4 hour drive, then youll have no issues managing this thing and continuing to operate it.  Smaller parks do take a little more time to exit if you ever go to sell...especially is more rural places

Jeremy Roberts · Answer

I thought I over paid for my park at 8.5 cap. 20 pads. 60% filled. I filled 4 of the 8 vacancies my first year, $20 lot increase and have achieved 20% COC returns. Great returns for a 100% financed property.

Owners originally listed for $295k, two years later I bought for $220k. Whispering Pines, Montville Maine. 15 minutes outside Belfast.

There is huge need for affordable housing in Maine. Unless the park is run down 12 cap might be to low, start at 10%. $150,000 maybe

Thomas S. · Answer

All community owners are unrealistic in regards to the value of their community. I would stay with your initial number and let him try listing it for sale. With only 9 lots rented we will never sell at his price. Stay in touch with him and let him know your offer stands.

Jonathan Pflueger · Answer

@John West

That is so awesome that you gave this guy a call and he was actually thinking of selling!! I love it. When you called the owner, how did the conversation go? I am alway curious to see what people bite off on. In my experience some, people like the direct approach while others like to to chit chat a while and get to know you before they will talk about business or they just hang up.

The park looks like it has a lot of upside potential and since you are local I think you have a advantage being that you could act as the PM. I am not really sure on numbers as I have never purchased a park before.

Oh, if the first price you offer doesn't make you at least a little uncomfortable you are probably offering too high. You never know!

Best of luck and keep us updated on how this goes.

John West · Answer

Thanks for your input @Jeremy Roberts. I offered 179k. I'm almost next door and know I can turn the park around. If I discovered anything major during due diligence, I could always adjust, but the owner still didn't bite. I'll keep at it. Thanks again.

Nathan Oberle · Answer

That's good advice, Rachel. Long story short, we had a similar situation with the family business. Found a business with a lot of upside potential but seller wanted way more than what was reasonable. Unfortunately he developed health problems a few years later and we were able to buy for a fair price.

Rachel H. · Answer

@John West Definitely keep in touch with the owner and follow up regularly. Time has a way of changing people's circumstances and needs. Good luck!

Ryan Groene · Answer

See if he will sell both parks and maybe see if you can get a better deal on both of them vs One park....you may have to buy a bad park buy you get a good park in the meantime....

John West · Answer

Thanks for your input @Ryan Groene  and @Jonathan Pflueger. I had a face to face with the owner. It was terribly run. He has a thriving business and another park. It appears he just throws everything in together. He didn't know any of his numbers aside from what lot rent was. Everything else was just guessing. I ran the numbers this, that and the other way. I know there is a ton of upside if I can buy the property for what its worth right now,  but at the end of the day he has unrealistic expectations of what it is worth.

What should I offer on this mobile home park in Maine?

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