Should I purse this mobile home park?

Question

I've been educating myself in rental properties for over a year, but have yet to pull the plug. Have evaluated a number of deals but haven't found the "right" one yet. I've been looking at SFRs and multi's, but I found a mobile home park that I'm really interested in. I need help evaluating the opportunity.

• 15 mins from me
• 10 acres of very nice land (mountain views on all sides)
• rural area
• elderly couple wanting to retire
• 17 homes, 3 tenant-owned...all others rented
• county has approved this park with zoning to expand to 40 mobile homes if desired
• well on property, though park now uses public water
• private septic

Here are the limited financials I've seen so far for 2018:

• current rent receipts approx $4,200 month ($50,600 last year)
• Taxes $650
• Water $8,500
• Insurance $1,800
• Repairs/Maint $3,300
• asking price $325K

Owners won't do any owner financing so I'd have to figure that out. But, on the surface, looks like a promising opportunity to me. I have driven through the park and, while the homes are not new, they are all well maintained, everything is mowed, and all yards/homes look nice.

Pics attached.

Thoughts from you gurus???

Frank Rolfe · Answer

All the money in mobile home parks is in the land -- never the homes. Park owners typically sell the homes for very small numbers so that all the rent will go into the land. The typical pricing is roughly:

Pre-HUD (1976 and older) around $1,000

1977 to 1979 around $3,000

1980 to 1990 around $5,000

1991 to 2000 around $10,000

2001 to 2010 around $15,000

2011 to current around $20,000

Those prices are based on being fully renovated and ready to go with solid stairs and skirting.

Any renovations you do would need to be subtracted from these retail prices.

Note that this is extremely general -- in California a $10,000 home might sell for $150,000 and in Florida a $5,000 home might sell for $50,000. These would be roughly Midwest and Great Plains values -- but extend even to states such as OH and PA.

There is nothing wrong with parks with older homes -- some of the most valuable in the U.S. feature homes mostly focused about the 1970s and 1980s. But the homes are merely a conduit to getting lot rent. Never confuse the homes (personal property) from the park (real property). One can be valued at a cap rate and the other can't.

Frank Rolfe · Answer

I am a believer in being a deal "maker" rather than a deal "killer" but there are some things you need to know about this deal:

1) Assuming that the lot rent is around $200 per month (guessing based on the numbers you posted) you'd have total revenue on REAL property of $3,400 per month.

2) The expense ratio on this deal is closer to 50% due to small size and private utilities, hence a net income of $16,800 per year.

3) At a 10% cap rate (I wouldn't go any lower due to rural location) the value of the REAL property is only $168,000 plus the value of the mobile homes which are PERSONAL property and cannot be "capped" (figure on maybe $3,000 per home x 14 = $42,000) so the total value of REAL and PERSONAL property is roughly $210,000 NOT $325,000.

4) A park in a rural setting like this would have to have a strong test ad result (20 calls in 10 days) or the market is too weak to support the property.

Based on experience, I would think this would only work in Nebraska, Colorado, Montana, Wyoming or some state in which there is still high levels of demand for rural housing and economic vitality to push rents in the future.

Mark Brogan · Answer

@Tim Y.

All of the homes are rentals, this park is way over priced, also make sure that the right of way getting into the park next to the store is a granted easement or something that you can continue to use because the store is also for sale, the maintenance numbers are way low for the homes that are in this park

Get the true numbers of everything before considering this park

Good luck

Jerry W. · Answer

@Frank Rolfe, I don't want to hijack this thread, but I had a guy call me today to see if I wanted to buy his 9 lot trailer park in Worland WY.  It has 7 trailer on it and the park owns them all.  The idea actually scared me when he explained the deal, as the newest trailer was early 1970s.  I have bought 2 trailer houses this year, a 16 foot wide and a double wide, both on 2 city lots and in very good shape.  I also bought 3 houses this year, but resold 2 of them.  So buying houses doesn't scare me, but the amount of work and drama of owning a tiny trailer park in Worland WY in a declining market seriously scared me.  Your post however at least gave me a rudimentary base of knowledge to use to look at the deal a little more intelligently.  Thank you for the quick education.  Thank you for sharing your knowledge with us.

@Tim Y., you need to load votes on this guys posts, he gave you amazingly good advice and information.

Jon Dorsey · Answer

@Tim Y. Definitely keep digging into it. Work on the relationship with the owners and find out what you can about history, financials, tenants, etc. Build the bond. Then work down the price. Bank underwriting will help you with getting the price down because they won’t seller finance. You could agree on a lot rice with a stipulation on about bank financing to reduce it further. Plenty of options.

Mark Brogan · Answer

@Tim Y.

Also don’t forget to factor in all the badly needed road repairs since you can not even get to some of the homes that are empty.

Not giving you a hard time, just get the correct numbers on this park, not the bs the realtors love to pass around

Tim Y. · Answer

Thanks Mark :-)

Maksim Easley · Answer

@Tim Y. How much is the lot rent? Using that, you can figure out the cap rate. What is the market lot rent in the area? Will you be able to increase it? Are the people who are renting the homes interested in buying them? I see mobile home parks as a land rental business so I’d want to sell those homes as soon as possible. Maintenance and repairs bill will go down. Headaches of taking care of those problems will be reduced and letting the owners take care of them is more than worth it. Also, what is the market like? Is there great demand for mobile homes there? If so, I would add more. If not, I would pass up the deal. Post some ads on Craigslist or such and see how many people call per week you get asking about the homes. If it’s less than 10, then there’s not enough demand in my opinion. It looks like a potential deal but not enough information. To purchase it, find a partner to provide the down payment and let the bank finance the rest of you do decide to go through with it. By the way, I am not an expert on the topic but I’m looking into buying a MHP in the near future and have done quite a bit of research and education on the topic. I recommend you check out mobile Home university or Mobile Home Park Academy for more info on how to evaluate a potential MHP deal if you haven’t already.

Tim Y. · Answer

@Frank Rolfe, thank you so much for that education. It's very helpful.

Should I purse this mobile home park?

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