Manufactured Home Park- Good Deal?

Question

Hi everyone,

I am a beginner investor in every sense of the term.  That being said, I would like any criticism and comments regarding this deal.

The specs are:

- $1,700,000 manufactured/mobile home park
- 63 units/spaces renting for average $305/month
- 4 houses renting for $600/month
- Parking income, $670/month
- Laundry Income, $330/month

These are estimates, of course, but assuming these numbers to be correct, monthly income would be $22,615.

If I put 10% down ($170,000), that leaves $1,530,000 to be financed.  From here I see two possible financing options.

1. Finance $1,530,000 from a standard lender at 5.5%
2 Some combination of lender/seller financing

If I get a mortgage for $1,530,000 at 5.5% over 30 years, monthly payments would be $8687.17.

Monthly Income $22,615.00 - Mortgage Payment $8,687.17 = $13927.83

My questions:

- What other types of expenses should I account for along with property tax, insurance, maintenance, and property manager fees?

By my calculations, before accounting for any other expenses, I will be netting $167,133.96.  This seems like a good deal as I will almost be making back my initial investment in cash flow in the first year.  I realize that this number is way off because I have not accounted for all the other expense mentioned above.  However, it seems after factoring in these extra expenses, there is still a good amount of money to be made.  Am I way off in this assessment?

-Is this a good deal?

I realize this is a fairly long post so I would like to thank anyone who took the time to read it.  Comments and criticism are also greatly appreciated because I am, after all, very new to this.  Thank you.

:wink:

Uwe S. · Answer

Andrew,
If you have huge money you can buy a 5% CAP propertie all cash - why not but if you need some financing so 10% CAP rate or more is even better.

-Uwe

Oz M. · Answer

You may wish to use Dave Reynold's formula for evaluating a mhp value

Andrew Saquing · Answer

Terry- Thanks for the suggestion.  I looked on amazon and they didn't have any for sale but I will keep looking.

Uwe- Thank you for your help in understanding cap rate.  Is there some type of standard cap rate that you typically demand (like 10%)?  Also, I was using cash flow return formula when looking at properties.  Would you recommend any others that are important to consider as well?

Uwe S. · Answer

Andrew,

50% operating (standard) rule should be the best, I use even 55% in my calculations. If you donÂ´t reach it in real life, its more than okay and good for you.

Value of propertie in my calculation = gross income - expenses x 10, so in your case : $22,615 x 12 - 55% x 10 =  $1,221,210.

Mortgage payments have no place in an NOI.

-Uwe

Terry Drake · Answer

Hi Andrew.  I think a good book for you to read would be "Mobile Home Wealth part 2".  It explains how to come up with your max offer price for a mobile home park (or any commercial property for that matter) and pretty much walks you through buying a park, the paperwork, information on getting loans, ect.  If you can get your hands on one thumb through it and check it out.  Well worth the money IMO.

Andrew Saquing · Answer

Thanks for your reply, Uwe.  I have a couple of questions.

- Should I apply 50% operating expense to all properties that I look at?  Is this a standard rule?

- How did you arrive at $1.1 million as a good price?  With a NOI of $31,404/year and 10% cap rate, isn't the value around $314,040?

Thank you for your help.
-Andy

Uwe S. · Answer

Hello Andrew,

I miss propertie taxes, utilities (energy/water etc.), maintenance, management fees, vacancy, payroll(?) ... .

Only 10% down on commercial? It wonÂ´t work I guess.

I see $22,615 gross monthly - 50% expenses - your $8690 mortgage (if you can get one) = $2,617 NOI

This is not a good deal, price must be at $1,1 million (for 10% CAP rate) not more.

-Uwe