Thoughts on These Mobile Home Park Numbers

[Kyle Nield]

I recently came across a mobile home park for sale, and just wanted to get a few opinions on my thought process here.  First of all, this would be my first mobile home park.  My brother works in construction just a few miles from the park and would do the maintenance and property management as his part of the investment into the property (would likely do a 50/50 split).   

-Property is on 5.5 acres about 15-20 minute drive from the beach.  

-There are currently 40 lots, 1 mobile home owned by tenant, 11 mobile homes park owned, and 28 are RV lots.  

- The mobile home lots bring in more rent than the RV lots, and since my brother is in construction, the plan would be to over time transition those lots to either mobile homes or tiny homes (my brother has decent experience with tiny homes).

-Asking price is 1.4 mill, CAP rate 12.31%, According to 2020 rent roll rent brought in $205,000, and expenses to operate were $41,000 (included in those expenses were taxes, insurance, garbage, electric, lawn, well permit, water testing, and 5% maintenance factor.

Any thoughts or advice would be very appreciated.  Another concern if this turns out to be a good investment is financing.  I have great credit with a good paying job (above $200,000), and around $150,000 saved up for down payment, but I have a lot of student loan debt (currently my only debt), and I've heard financing for mobile home parks is hard to come by.  

[Frank Rolfe]

My first observation is that I don't believe the numbers the seller is giving you. RV lots include all utilities (including electric) and the expense ratio is going to be at least 40%+ yet he's claiming 20%. And I'm pretty confident he's trying to include the park-owned home rental in that revenue number of $205,000 instead of only the lot rent.

So let's start the back-of-the-envelope calculation all over again. You have 12 mobile home lots and 28 RV lots. Assuming the lot rent on the mobile home lots is $300 per month (just guessing), that's an annual revenue of around $43,200. Assuming the RV lots rent for $400 per month including all utilities -- and assuming they're at 50% occupancy -- then that portion of the revenue is $67,200. So I'm guessing the real total revenue of this property is closer to $100,000 per year than it is $200,000 based on the standard industry practice of counting real property income only (no park owned homes).

If you then factor 40% expense ratio on this, you have a net income of around $60,000 per year, making the cap rate closer to 6% than it is 12%. And that does not work at all.

But all of this is simply based on guesses on my part -- I have no idea what the actual numbers are. However, I do know a few things regardless of the actual numbers:

1) You can only count the LOT RENT on those mobile homes.

2) Expense ratios on both mobile home parks and RV parks are around 40% and NOT 20%.

3) On an RV park of this size -- assuming that all else is fine -- the prevailing cap rate is 2 points higher than a mobile home park and would have to be at least 10% or so to work for a lender.

4) Converting RV lots to mobile home lots is extremely difficult and costly as the lots are probably not big enough to hold a mobile home (so you may have to combine 2 RV lots or 4 RV lots for every single mobile home lot) and the electrical will never handle a 100 amp to 200 amp mobile home (so you'll have to totally re-wire that section of the park).

It sounds like you're life is going good with your current financial structure, so don't mess that up with a bad mobile home park buy. There are plenty of good deals out there, but I'm concerned that this may not be one of them.

Not trying to be a "deal killer" -- just trying to keep you out of trouble!