Mobile Home park evaluation

[Robert Meyer]

Hello all,

After talking and networking with a friend I have come across a possibly strong deal, but am unsure how to proceed since I am new to investing, and definitely new to mobile homes/parks. He has first come across the deal (he personally knows the owner) and wants to partner up to make this happen. He almost let it die, but we both see a lot of potential here so we are exploring different avenues. 

Here are the details:

36 Lots total

-31 park owned rented mobiles mostly all late 90's @500

-2 park owned rented doubles @700

-3 open lots (not sure how hard it is to fill open spots)

-Park will need a new road: quoted at 30K

-Septic tanks for sewer 2-3 trailers per tank

-water billed to park (opportunity to separately meter and increase revenue?)

-electric and trash billed directly to tenants

-taxes for the land are 2k/yr

-taxes for homes are 2500/yr

-Location is rural North Carolina, but seemingly desirable location

-maintenance 3500/month (seemed high but unfamiliar)

Total asking price is 870k= 540k land plus 330k homes (avg 10k each home) owner will carry 570k at 5% fixed for 15 yr and wants 300k down, but I only have about 75-100k I can contribute so I am looking into hard money at 12% interest only for a year or 2 and using the first year to sell trailers to the tenants at 10k each to get out of the hard money debt (exit strategy for private lenders is my pickle so far- what do you think about equity share or selling off trailers and collecting lot rent at 300 each?) My intent is to build cashflow as much as possible in my rentals in order to quit my day job and be home more with my family -I travel ALOT. My partner will be local and able to manage and I will be all over the united states. I am being told that there is room to increase rents, but I need to do more research and learn to determine that before I bank on it. 

Your thoughts are greatly appreciated. If you want/need any clarifying information just ask! If anyone experienced would like to partner up message me and we can see how to proceed. Thanks in advance!

Best,

Rob

[Mario Dattilo]

Hey Robert! Sounds like you got a lot of moving parts on this deal but the first I would look at is the market. Is there enough demand by doing a test ad. I only say that because you said it was rural. I think the next question is will there be demand for an ownership model. Often in rural markets the rental model is the only route. I would recommend reconsidering buying in those markets as the rental model is not ideal for too many reasons to list in this post. 

When you say septics, do you mean all the septics need replacement or a select few?

Are your lots large enough to support replacement septics? You dont want to get in a position where you need to remove homes to install septics.

Based on $300 lot rents (assuming that is market and the market supports lot rent model) it doesn't sound like a bad deal. 

Sell the trailers. Bring on an equity partner or affordable debt. Dont take 12% hard money. It isn't necessary.

I'll PM you. We may consider partnering with you on this one.

[Robert Meyer]

@Mario Dattilo

Mario,

Thank you for the reply! I have received your message and will be replying shortly. My partner on this has another park in the area and there seems to be a good demand for renters. He didn’t advertise and is still receiving calls for rentals he has already filled from word of mouth. As for the septic tanks, that was information only. None of them seem to need replacement at this time. However, we would need an inspection to determine their condition so it is another good insight to consider. I am interested in how to determine if the market would support buyers vs purely park owned rentals. Thanks again and I’ll be reaching out!

-Rob

[Mario Dattilo]

Look at demographics. If median Income for the zip code is low (less than $35k +/-), if market rents for a 2 or 3 bed apartment are pretty low under $600 and you see all the other parks are rental communities those are good signs that it is a rental market. One of the strongest indicators is home sales are sub $100k. If you’re seeing single family homes selling for $50k nobody is going to want a mobile home with rented land for the same price (and similar monthly payments). The numbers above are not hard and fast but when I see them below those I know it’s probably not good. 

If the market is checking the boxes above as more of a low income rental market I wouldn’t recommend buying it. Rental communities are more like horizontal apartment buildings and without getting into valuation you can end up overpaying compared to what a lender, appraiser, or future buyer will value it at. It will come with a higher expense ratio, a lot more turnover, more management intense, a lot of make ready costs, and require most staff/payroll. It kind of defeats the purpose of buying a MHP. 

Hope this helps. 

[Robert Meyer]

@Mario Dattilo

That makes a lot of sense, thank you. I will dig into this information and should have a decent idea for when we speak later.

[Jack Martin]

@Robert Meyer the guidance you have received from @Mario Dattilo is spot on.  Before you move forward, the most important question to answer will be market demand. Here are some simple steps to gain clarity on the market demand in the area.

Start with the apartments in the area. Call and ask how much monthly rent is for a 2 bedroom apartment. It should be at least double the lot rent at a mobile home park in the same neighborhood. Then ask how many vacant units there are to choose from. If you find that the apartments have a low vacancy, that is a good sign. If you find high vacancy, that is a red flag for the market and you should be cautious. You should always consider apartments as an option for your prospective tenant, because if it costs them more to make payments on the mobile home plus pay the lot rent, they might just rent an apartment instead. Most people might miss this little nugget, but it is a quick way to determine the lack of demand and where lot rent should be in the market.

Next, call the mobile home parks within 5-10 miles that are similar parks. Ask them what their current lot rent is and what else is included/excluded? Ask if they have any rentals in the park and how much those rent for. Ask them if they have any homes for sale in the park and what the details are, and how many homes have sold recently. If they have homes for sale, but no interest from buyers, that may be a red flag.  Do they finance? How much do they require down? What kind of credit do they require? Ask them if there are any vacant spaces in the park and what incentives would they offer if you brought your own home into the park. From those calls, you will have learned what your competition is related to lot rent, the sale of homes, how many POH they have, and what incentives you may have to offer as you sell homes.

Next, you can advertise a home for sale yourself as a "test ad". Place ads on every platform you can where home buyers could be looking for an inexpensive home. The goal of these test ads are simply to find out how much interest there is in the market for the homes you will be selling once you purchase the park. Make sure to advertise in all the available channels you can find so you can perform a true test. (craigslist, FSBO, zillow, etc. as well as placing signs on the street corners in the area) If you advertise on all available platforms, you should be receiving a high volume of calls (aim at 15-20 calls a week). Less than that could be another red flag.

Take the time to do this right and you will be glad you did. If you get positive signs from all those efforts, then it's likely there is high demand for mobile homes and it's possible you have a good opportunity on your hands. Remember, raising rent, filling vacant spaces and selling POHs is all about market demand. Make sure demand is present or you won't be able to execute your strategy and you'll end up wishing you had never bought the park.

All the best,

Jack

[Paul Moore]

Hi @Robert Meyer the advice above is excellent. I agree that you should not have to take hard money for this. And whether you do or not, I would not expect that you will get much cash upfront from these homes you are selling to the tenants. You might get a few thousand dollars here and there, but mostly you will be financing it for them. Be careful of the legal issues when doing that.

I would also be careful of getting a park with private water and septic. It could cause a lot of problems down the road.

Good luck!