Mobile Home Park - Deal Analysis

[Ryland Clay Parker]

Good afternoon everyone!

I'm new to real estate investing and am grinding to secure my first passive income property. In my search, I came across a mobile home park in my area that appears to be very well maintained and cash flow positive according to the financial paperwork on the property. However, I'm struggling to analyze the deal properly given that the sale includes the primary residence of the seller.

Also, the listing price is based on CMA and not the actual income.

The "quick" of it is as follows:

Listing Price is $775,000.00

• Property is completely fenced in with a gated entry.
• 10 Mobile Homes (Range from 70's- 90's models & Park owned) all on concrete slabs with individual sump and septic tanks.
• 1,800 square foot wood frame home and a park office building.

Current Lease Payments = $5,405 x 12= $64,860

Expenses= $14,427/year (not including home expenses)

Based on current CMA:

Lease Payments = $7,100.00 (mobile homes) + $1,500.00 (3/2 residential home) = $8,600.00 x 12 = $103,200.00

Current Cap Rate: 7% (based on listing price and not including home rent income)

CMA Cap Rate: 11% (based on CMA + 16,000/ year expenses)

I believe the property to be over priced but could be worth the investment, but want to make sure I'm understanding the "deal" correctly. 

Any good advice is appreciated!

Thank you for your time!

[Jack Martin]

@Ryland Clay Parker the way you've described the deal, it is currently operating as a rental portfolio, and not the way most experienced operators would run a mobile home park. Essentially, you have 11 rental homes and will be responsible for the maintenance on all 11 of them. You can analyze the deal that way if you want to keep running at as a rental portfolio, but if you do, just keep in mind you will need to allocate a big budget for the maintenance and repairs and prepare yourself to have a high management budget as well, so you can afford to respond to the calls you will get for repairs. 

If you wanted to operate that deal as a mobile home park, you would sell the homes to the current residents (or new ones if necessary) and only charge lot rent.  That creates two extremely important items that are intrinsic to mobile home parks:

1 - when you sell homes to the residents, they begin to behave like a homeowner and tend to stay way longer than a renter would. 

2 - you no longer have to do the maintenance and repairs on the homes, making the ongoing management much simpler and the costs much more stable.  

When you do that, you will be reducing the income as well, since the lot rent for a property like that is likely to be about 50% less than the rent. 

Based on experience, a deal like this may be hard to negotiate unless the seller is open minded, because they will have a hard time letting go of capitalization of the rental income.  If you want to run the deal as a park, you will need to stick to your guns and negotiate a lower price, because you don't want to pay for income you plan to get rid of:)