Buying a Mobile Home Park

[Dominick Dahmen]

I'm looking at a 44 space MHP. It's offering price is $1,350,000, and net income is $106,000. So a 7.8% cap rate. The thing is that the rents are considerably below market (according to seller which I need to verify) 315 and market is 475. What is interesting is they have put together essentially a 4 year plan to increase values to $176,000 without filling the 12 vacant lots. This would include metering water and raising rents to 475 over a few years.

It seems like they are partially valuing the park on the future profitability of the park (which isn't guaranteed). Maybe the park isn't as nice as the other one in the area?

Does anyone have any suggestions or input?

[Frank Rolfe]

You would definitely want to tie that up before someone else does. A 7.8% cap rate with the ability to increase rents and fill lots and sub-meter water and sewer is a good deal typically. That price does not really have those items factored in as you can get nearly a 3 point spread day one, and definitely by day 90 given those assumptions (you can raise the rent upon purchase enough to hit a 3 point spread).

The general rule is to tie deals like that up first, then ponder them more during due diligence. It's a competitive world and a good motto is "Time Kills Deals".

We see deals like that all the time -- situations where mom & pop have done little to maximize income. It's a win/win for both parties.