Help Evaluate a Deal: Mobile Home Park, partial HUD

[Casey Smith]

Hello everyone!

This is my first post so please bear with me and be patient if I don't follow standard decorum. I'm just going lay some out of the details and I would really appreciate some insight as if it seems like a deal some of you experienced investors would consider.

There are 20 mobile home units, all of which are included in the purchase price and then the tenants each pay rent. The mobile homes vary in size but rent ranges between $400 and $750 per month per unit. Total monthly rents come to $11,855. 4 of the units are HUD qualified (if you have insight to benefits/drawbacks of this, I'd love to hear it). It's on just shy of 3 acres of land. There is a duplex on sight that the manager lives in. All tenants and the manager would be inherited. Water is master metered and paid by the owner but all other utilities (sewer, gas, cable, electricity) are individually metered and paid by the tenants It is in a small, rural town in Washington state. Probably a C+ neighborhood.

Here is a look at the cash flows (as reported by the current owner):

Expenses per unit: $2,000

Expense to GOI: 28%

Cap rate: 10.3%

NOI: $104,044

Cash on Cash: 29.5%

Asking price: $800,000 

Conventional financing, 20% down preferred.

Thank you in advance for any advice you are able to provide.

[Bill F.]

@Casey Smith Welcome to BP and congrats on the potential deal.

Here are the issues I see: 

1. The seller includes income from the rentals into the value of the park. Most investors only count the income from lot rent into valuing the park and treat the homes like a separate transaction. If you only count Gross rents from the lot rent (@ $255/month) the Gross rents drop to $63k/yr. If you want to keep running it like an apartment building, by all means ignore what I'm saying, but you'll get a more accurate price if you think about buying a park then buying the trailers instead of buying them together, since you can get appraisals on the trailers quite easily. 

2. For a small park like this they have very very low expenses, considering they have 20 rentals. 

3. There is some upside to sub metering utilities. 

4. There number don't included vacancy credits. 

$74k/pad is a steep price for a park in rural WA State with mainly POHs.

What are the age an conditions of the homes?