Mobile Home Park Under Contract - Michigan

[Samuel S.]

Hey BP Folks,

Was hoping I could get some advice on the below MHP deal that I just got under contract.  I have not started the core due diligence yet, but from the surface and analyzing the preliminary numbers I have received, it appears to have some good potential.  The 2 week inspection period would start as soon as the executive order is lifted in Michigan, which could happen in 2 weeks at the earliest.  So I have at least a month to make a final decision.

Purchase price negotiated - $300K

Current Monthly Income - $8200 

28 units in total, broken down below:

20 Trailer Pads - 17 Trailers currently on the property (landlord owns all trailers, and leases them to tenants)

4 free standing cabins

3 unit apartment 

1 single family home - landlord does not charge rent to the tenants, as they are the onsite "management" who help collect rents, do minor maintenance repairs, etc

1 storage building on site

The current rents range from 325-475 with tenant paid electric and gas, and I believe that many of existing tenants are on government assistance (not section 8).  

There are currently 7 vacancies - 3 open pads, 2 pads with trailers that need to be removed, and 2 apartment units (1 of the units was used as storage and is ready to be rented, the other was used as an office but has been cleaned and is ready to be rented).  Technically there would be 8 vacancies if you included the single family home that the onsite managers live in for free.

As far as re-occurring expenses, the landlord is currently paying for the water/sewer (I believe it is on city water/sewer but going to confirm), as well as trash pick up.  Per the owners P&L, these two expenses together equal $1800/month.  Current taxes are approximately $475/mo, and insurance is $291/mo.  The owner did say that he found a company that can separately meter the water to be billed back to the tenants, so that could be a big value add.  The owner does not insure the trailers, but does have a liability policy on the park.  I would expect the taxes to increase at a sale, but not much as I believe the owner has owned the park for 5 years.  

So all in all currently, the net monthly income appears to be $5,634 ($8200 income -$1800 utilities -$475 taxes - $291 insurance). If this is accurate, it would put the CAP rate at 22%. Of course this is all before any potential debt service and budgeting for maintenance, vacancies, capex, etc.

As far as value add, I think there would be 3 main plays - billing back the water to the tenants, leasing out the 7 total vacant units, adding coin operated washer/dryers.  This could potentially add $4600 in monthly rental income not including the co-op washer/dryer (400 rent x 7 units + 1800 in water/sewer costs).  The owner also showed on the map layout that there is room on the park to add approx. 5-7 new pads.  But, the current lot sizes have been grandfathered in, as the latest code calls for larger lot sizes.  So I do not yet know the feasibility of this, and if the city would allow for additional pads at the current lot size. 

Local competition - This is located in a decent sized county in Michigan.  From what I can tell there is only 1 other local MHP in the city, but approx. 8 other MHP's in the county.  

I apologize for the long email, just wanted to provide as much info as I have at this point.  

Any advice would be greatly appreciated!!