Considering a MHP, can you guys help me?

Question

Hello, everyone, newb here, Ive been trying to find a good property to invest in but around here and I assume everywhere, people think junk is gold. Ive found a MHP on 10 acres close to the interstate and retail, zoned commercial. City sewer and utilities, so no septic! 56 units, 11 owner units-part of the 56. I would sell these with owner financing. price is 450K. I know i need rent rolls, taxes etc. What else would you want to know? I should also say lot rent is around 200$, up to 320 at the really nice parks with clubhouse, landscaping etc.

Jim Johnson · Answer

Ryan R-
I own several parks, the closest to you in Indiana. I would tell you from my experience you probably need less information than you might think to make your offer. Really, if they give you the net operating income, how many lots are occupied, and who pays water, sewer and trash you probably have enough to put something together. Most of the data your looking for will come in the due diligence period, and after you get that data and have done your site inspection, you can go back to the seller and make modifications if necessary. Note in your due diligence you will want to research the area, call all of the parks in the area and learn what they charge for rents, and who pays utilities. You will have to make some adjustments along the way for differing utility arrangement's. If you do not really know what your looking at on site, or with the books, hire a consultant or take on a operating partner that will fill in the gaps. I have been a guest presenter at one of the educational bootcamps for about 5 years now, and if you learn well in that environment they can be well worth the investment. If your not the classroom type, hire or partner. 
A few tips... once you get the gross income, the expenses should be about 40, 45 or maybe 50% of the gross. If the expenses are presenting way less, like 20%- someone is probably hiding expenses in the capital improvement part of the book. Very, very common. Know how to read the books. If the expenses are over that 50% mark, you are probably looking at a park that is managed really poorly, or someone that is writing off stuff in the park they should not be. I looked at a park a few years back, where the owner was writing off huge chunks of his personal helicopter. 
last thing- owner financing can be great- or the kiss of death. Watch the terms, do not get sucked into the price. Interest rates, length of the terms and all that stuff plays a huge role. You can have great cash flow, but so overpay for the park you will never refi it. Again, if your not a rockstar at terms and owner financing, find someone that is and get them on your team. 
good luck!

Ken Rishel · Answer

DD is very important, but it is also complex to do it right. I have a friend who believes that if you don't buy it right, you can never run it right. The horror stories of people making huge mistakes abound.

Paying too much will almost always guarantee failure, as will not knowing what challenges face you if you do buy it. It is extremely important to know and understand what you are looking at not only in the financials, but also in the physical facilities.

I, and three partners, sold a 1,000 site community for just a hair under $40,000,000 with a lot rent of $217 to an overeager buyer who never seemed to learn that he could not raise the rent to match the purchase price. He is in bankruptcy today.

I was asked to get involved when a major player bought a 650 site community only to discover that all of the homes were being rented to the occupants rather than owned by the occupants. Worse, the homes were all abandoned by the original lenders and they still held the titles. All of this despite their DD. The seller had simply faked the financials, and what they thought was lot rent actually also covered the rental of home the seller did not own.

I have several times helped friends avoid overpaying because they missed physical plant challenges when they did their own DD.

One of the communities I helped a friend avoid has sold 12 times in the last 12 years because of the challenges.

Just to be clear, I do not do DDs anymore, nor am I offering to do so.

Springfield, MO is a great area for land lease so prices will be higher.

If this is the first community you are buying, I would seriously consider engaging a professional to help you that really knows what they are doing. The money they save you will far exceed their fee.

If you want names and contact information of people I know and trust, I would be happy to supply you with them.

Melanie Reyes · Answer

Please let me know how your success goes. I am interested in mobile home parks myself.

Ryan Roberts · Answer

Thanks for all the input guys, sorry Ive been absent, very busy lately. As far as the vacancy rate and all the specifics, Im still trying to set up a meeting and determine these things. I am a little worried because all of the parks in the area seem to be for sale which makes me wonder if there is something that I dont know that the sellers do? Thanks Ken for the very informative and detailed reply, I would definitely like to hear the names of some of the people you are talking about. I drove around and looked at these parks and they do not seem to be in very good shape, nor has any upkeep been done lately. Probably a bad sign.

Dale Osborn · Answer

MHPs in WA are staying filled so do not have to accept any renters. Once you do plan on having to repair that unit more as they have no respect for your property. They party all night and sleep all day. Renters are a big red flag for someone looking to buy from you down the road.

Sabrina Laplante · Answer

Hi Ryan R, what is the vacancy rate on this park?

Ryan M. · Answer

I will say we spend a considerable amount on both parks' landscaping to keep curb appeal and avoid the typical park appearance.

Joel Owens · Answer

I never have owned a mobile home park.My moms friends have been doing it over 40 years.

Whether a park works or not depends on how states and counties and cities view them.

If it's a suburban area to urban area here in Georgia they are grandfathered in.

The counties and cities give you all kinds of grief.They find ways of pushing the park owners to sell off for development.

In doing this the county or city gets rid of the transient renters,they eye sore of the park,the high crime,and they increase their per acre tax assessment base.

On 10 acres of commercial the government would much rather have a nice new commercial development there than trailers.A junkie trailer sitting on land has very low assessment value.

If you were going to buy a park I would look at the value of selling it off for development down the road and making sure you control the whole thing and can get people out ( a few people of the lots own the land for example and make it tough for you to resale down the road.)

Ryan M. · Answer

I certainly can't speak for your market and your due diligence will determine that. But unfortunately for us the days of little time commitment are gone. Time is eaten up on rental homes and dealing with tenants when the goal is just to collect the lot rent not rent the whole home.

There are a couple park people that may chime in on here.

Ryan Roberts · Answer

So the less involvement , high return thing is a bit of a pipe dream for me then?  At least the way it is now?

Considering a MHP, can you guys help me?

Most Popular Reply