Is this mobile home park deal a good deal?

[Kellen Driscoll]

Hey BP,

I have a deal under contract in Florida and I am considering the due diligence that I have found so far. The park is on well and septic systems. 1 well and 7 septic systems which have new components as of 2014. The park consists of 29 park owned homes. There are 2 vacant homes currently.

• Purchase price $875,000 with 20k seller credit for closing costs
• Gross current income 188k, I am speculating the NOI to be half of that although the actual number seems to be quite a bit higher. The other two homes could rent for $650-750.
• Leases are month to month
• The homes are 1970-1990 SW models
• The roads have been repaired recently, new electric systems, light rehabs to almost all the homes etc

Financing would consist of a 25% down 25-30yr amortization loan.

Before I order the paid for inspections, what do you fellow investors think?

Thanks!

Kellen

[Jack Martin]

@Kellen Driscoll you are getting some great candid guidance in this thread. Fundamentally, most MHP investors are seeking recession resistant cash flow, so the goal is to have zero POHs. That way, your tenants have a vested interest in staying in the park, regardless of what occurs in their life or the world around them. When you buy a park with all POHs, you are basically buying an apartment (but with more headaches) and the tenants can simply gather their belongings and leave anytime they want. I’m not suggesting there would never be a case to buy a park with all POHs, but there would need to be an extremely compelling reason (a price well below market, a ton of upside, or a 5 star location) to do that. And unless the demand for that particular location is recession proof, then you will want to sell all the homes and convert to all tenant owned. That’s no small task, so make sure it’s worth it.

With that said, the most important variable you will need to ferret out is what the lot rent will be, once you sell the homes. Expand your radius to find comps, check the 2 bed apartment rents (they should be 2x lot rent), and run some test ads to sell one of your future homes to a tenant buyer. When you receive calls, you can ask them what they are finding out there. Collectively, that should give you a better handle what your competition is and what you will be able to charge for lot rent. Also, a 43% expense ratio is not very realistic for a small park with no city services and all POHs. Expect that to be a lot higher while you own the homes and come down closer to 50% after you’ve sold off all the homes. My gut says there are better opportunities out there so I would pass, but if you continue to pursue it, I would encourage you to be extremely conservative as you underwrite this deal.

All the best,

Jack