Evaluating a Mobile Home Park Investment

[Lance Hummel]

I am looking for some help identifying how to evaluate a mobile home park in duress.  The asking price to high to justify with the current cashflow.  It is a 150 unit park with only around 35 units currently rented.  6 units are POH and the other 29 are TOH.  The town is around 20,000 people and there are 3 primary parks in the town.  One park in town is pretty full 90%+ and is renting lots for 200 ea, while the park I am looking into is at 135 ea.  The upside potential for this park seems like it could be great, but I am unsure how to evaluate if the community is a failing community and there is not much chance of filling the park, or if is a diamond in the rough?  

There is a large college about a half hour from the park.  Is it reasonable to think that is possibility of filling the park? 

If based on your suggestions and the evaluation of the community shows good signs in filling the park what is the best way to secure decent homes to sell and rent out the lot spaces?

Please provide any suggestions and questions I should be looking at and asking to further the likelihood of making this deal happen or walking away.  

Thank you for your Help/

[Jack Martin]

@Lance Hummel the most important item for you to ferret out is demand.  Regardless of how much upside there might be, if there is no demand for tenant BUYERs, (and I stress BUYERs) then there is no way to take advantage of the upside and the deal would be a pass.  

Demand is quite simple to ferret out.  

Start with the apartments in the area.  Call them and ask how much a 2 bedroom apartment is?  It should be at least 2x the lot rent at a mobile home park in the same neighborhood.  Then ask how many vacant units there are to choose from?  If you find that the apartments have a low vacancy, that is a good sign.  If you find high vacancy, that is another red flag for the market and you should be cautious.  

Next, call the other parks in the area and do the same thing.  Ask if they have any homes available to rent?  Ask if they have any homes available to buy?  Do they finance?  How much do they require down? What kind of credit do they require?  All those questions will tell you a lot about the demand, even at a good park.  

Next, you can advertise a home for sale yourself as a "test ad".  Make sure to advertise in all the available channels you can find so you can perform a true test.  You should be receiving 20-30 calls a week if you expect to fill that much vacancy at a park.  Any less than that would be another red flag for me.  

Take the time to do this right and you will be glad you did.  

If you get positive signs from all those efforts, then it's possible the previous owner was not motivated and you could have a good deal on your hands.  Remember, filling vacant spaces is all about market demand.  Make sure it is there or you'll end up wishing you had never bought the park.  

If you pull the trigger, do your best to pay for the existing income that is currently in place at the park and avoid paying for potential upside.  That way, if you run into challenges filling up spaces, you are not behind the 8 ball having paid too much. 

All the best,

Jack