Thoughts on this 17 Lot MHP?

Question

I found an off-market mobile home park and would like to get other people's opinions on it.

The owner is retiring after having owned it for 40+ years. All homes are park owned and it wasn't marketed well from what I can tell (1 Craigslist ad even with 5vacant units). Price is negotiable but she doesn't want to do seller financing. Given the age of the homes, it would be best to owner finance them to the renters or find new tenants who will.

If there is something I can improve in my analysis, please let me know.

View My BiggerPockets Analysis

• She's asking $280,000
• 17 lots with homes. All of them are 60s-70s & park owned (all are older, park owned & have titles available)
• Gross income was $56,447 in 2018
• Total Expenses was $25,254 in 2018 (maintenance, water, garbage, insurance, taxes)
• I found 1 lot comp of $225 in a nicer park. This park's homes are currently renting for $350-$450 each (Water+Garbage included). 
• Is it safe to assume we can charge a $225 lot rent? We're a block away from the largest employer.
• 73% occupancy
• Grandfathered Septic Tanks: 2 community/ 5 individual

My rough analysis is based on owner financing the 17 homes for $5,000 each (netting back $80k from the purchase cost) and bringing lot rent to $225 & just owner finance the mobile home for $225-$250/mo for 24 months. To make it easier, I subtracted the $80k from the $280k purchase price in the BP calculator.

View My BiggerPockets Analysis

Mobile Homes in the Park

Profit & income is as reported on taxes:

Frank Rolfe · Answer

17 lots x $225 lot rent x 12 x .5 (small park with private utilities and a lot of deferred maintenance probably) = NOI of $22,950. Seller's price represents a cap rate of 22,950 divided by 280,000 = 8.2%. Those old homes probably need $5,000 each of work to sell them, so that erases any possible gain from sale, so that number is not $80,000 but actually $0.

So the profitability of this deal will be contingent on you filling up the other 4 lots and raising the lot rents farther over time.

Going to the end of the movie and working backwards, this park at 100% occupancy and rents of $295 five years from now would be worth maybe $450,000 (that's assuming an expense ratio of 40% and an exit cap rate of about 9.5%).

So is it worth all the effort to rehab and sell off 17 homes and contend with all the deferred maintenance and private sewer? Not sure -- it's contingent on your goals.

What could make this more attractive? Seller financing with 0% down or some other low down payment, or a much lower asking price. If you could get the price to $250,000 with 10% down and seller financing for 10 years at 5%, then the attractiveness increases dramatically.

Don Gouge · Answer

Here is the problem with having a park full of these ancient homes even if they are privately owned. They are basically worthless and very expensive to maintain. You might say that isn't my problem if you don't own them but it is. When the owner can no longer maintain them they will just walk away leaving you a pile of junk that you have to spend many thousands to renovate or just junk. You are then left with a vacant lot bringing in no revenue. You then have to fork out big bucks to bring in another trailer just to produce lot revenue again. This park just screams trouble to me.

Micki M. · Answer

Now that you've got the debbie downer insight, here's my two cents

It's definitely an opportunity. IMHO the price per lot is reasonable. Owner financing may not leave you as much negotiating room on price but it's always worth trying, just make sure the numbers work for your endgame of not owning the homes.

For the homes you have a couple of options. First of all you can sell them in their current condition but maybe not for $5k, people will fix them up themselves to get a deal. I would run some test listings on Facebook Marketplace and see what kind of response you get. I have a couple of inherited homes in a park right now that I listed on there and got hundreds of replies. Make sure you have your screening process in place and make it clear to the buyers so you end up with a solid tenant.

Owner financing is an option, but from what I've seen and heard from other park owners, the tenants will see it as 'rent to own' meaning you still fix things for them. It is common to default and then you're left with a vacant trailer possibly in worse condition. Basing your purchase solely on lot rent income can be a smarter approach, and then any sales will be bonus income.

You might also consider weighing the hassle of selling all the units and making sure people keep up their payments with finding a handyman to live in one unit and handle issues with the rental units?

Depending on the demographics of the area another approach would be to replace the oldest/worst units with new units through the CASH or similar program, and slowly upgrade the quality of the park/tenants. Someone who can buy a $20k home might be more likely to stick around and take pride in their lot than someone who buys a $2k home.

Thoughts on this 17 Lot MHP?

Most Popular Reply