First time REI looking at a mobile home park

[Ryan W.]

Hi all,

I found a 17 pad mobile home park for sale about 30 miles away from where I live. The park owns 11 of the units and then charges a lot fee for the other six. I'm hoping to make it up there soon to look at in person. Obviously, I won't make any moves until I've looked at it. One of many questions I have is are mobile home parks a good first real estate investment?

The asking price is $850,000. I'd offer $650k but with my offer structured like this:

$200,000 downpayment - $2,000/month for 24 months of seller-financing - Balloon payment on the 25th month of $402,000.

Is this a realistic offer? Pardon my inexperience!

Thanks!

Ryan

[Paul Stout]

From the 30,0000 foot view the market looks good. I'm guessing the median home price is over $90,000. If not that should be an area of concern. Based on the numbers you have posted your actual NOI is $45,180 making the purchase cap rate 5.3 (EBITDA from lots only $61,200 same expenses as you listed). Remember that trailer rent should never be considered in the price. If you do then you are paying $384,247 for the trailers (difference between total EBITDA and lot only EBITDA at a 9.7 cap rate). Would you pay an average of $35,000 for the trailers that are owned by the park? Will you be able to sell them for at least $35,000 each? I wouldn't recommend paying under a 10 and possibly up to 12 since the park is small and will be more difficult to market on the back end. It is also less efficient from a management standpoint and each vacancy will hurt all that much more. You will want to sell the mobile homes as soon as possible. Wise MHP investors own land not trailers. I would personally not assign even $1 in value to the old flat roofs. You may put a small value on the newest three and maybe 4. Find out what you think you can sell them for and offer half that number. Be conservative. You may want to consider giving the first 6 or 7 listed to the tenants if they are good tenants. Let them pay the maintenance and upkeep. Its a win/win since their expenses will go down month to month and more importantly so will yours. If I were making an offer on this park I would probably offer $400,000 with 10% down and owner finance amortized over 30 years with a 10 year balloon and negotiate from there. Be sure your offer stipulates that you can back out of the deal for any reason at all within the due diligence period (should be a minimum of 30 days). Run a test add. If you don't get a lot of interest in the park you may want to walk away. Be sure to get solid financial information like tax returns and bank statements. Based on tax returns you will probably see that the owner hasn't reported anywhere near $82,000 income on this property.