Mobile Home Park - How to evaluate

[Tom Murphy]

An acquaintance is wanting to move and she's offered us her mobile home park.  It's outside of Charlotte, NC on 12 acres and it has five mobile homes currently with long term tenants.  There's space for a sixth.  

All mobile homes are serviced by a community well and each have their own septic.  Rents average $650/month and she's asking $300,000 with the potential for owner financing.

Having not evaluated mobile home parks prior, what questions do we ask and what things do we look for please?  Thanks in advance

[Charlotte Dunford]

I am in the mobile home park business with 74 pads. Here's my evaluation process. 

1. The market. Must in a metro. Look at bestplaces.net to see if it's counted as inside a metro. The metro must have 100k+ in population. Housing vacancy must be lower or about the same as the national average. Recent job growth must be positive, and future projection must be positive.  The local apartment prices must be twice as high as the lot rent. (demand). I also look for comps - what does a similar housing product such as a stick built house cost? I prefer those that are at least 2x more expensive as that makes the mobile homes more attractive. 

2. Well and septic aren't ideal for a park that small. But if you can purchase it very cheaply, that might work. Do due diligence on the system - hard. 

3. Use the lot rent * lot number *12 months * 70% (expense ratio) /cap rate = value. DO NOT use the rental price. Use the lot rent only as that's how an appraiser will calculate when it comes refinancing or sale. Let's just say the lot rent is $300*5 lots*12 months*70%/9% cap rate = $140,000. They are asking for more than double the value, and it's also on private utiltiies with limited value-add room (only 1 empty lot). I would not buy this park myself unless they drop the price. 
4. Here's what I would offer. $140,000 with $14,000 down, owner-financing with 3% interest rate, 30-year amortization, and 10-year balloon. If they refuse, most on. There are better deals out there.