What do you think of this off market Mobile Home Park?

Question

All:

A broker I do a lot of deals with brought me an off-market Mobile Home Park.  Here is the overview that he provided me:

• Asking Price $1,200,000
• 9 Acres
• 43 total approved and zoned spaces
• 34 park owned homes
• MHs range in age from 1974 to 2000 but the average is ~1985
• Current rent $19,585.00/month
• 2 vacant homes that need to be rehabbed (estimated $595.00 per month for each)
• 7 vacant spots with power water and septic 
• All units have central heating & air
• 2 Wells with 3500 gallon water storage tank for all units 
• Septic tanks for all 43 pads 
• 2 Dumpsters for trash at $3,900/year
• Annual property taxes (real property and for MHs) are currently $6,100
• Owner says 2017 repairs were $41,000

I've owned and managed a lot of property but this would be my first MHP. Property seems to be have been well maintained by the current owner. Would love some feedback on the following:

-Based on the info provided, does anything jump out as a red flag? Anything that I need to look out for?

-I have no interest in being hands on with this investment. What type of PM would be the best fit for a 40-ish unit park? Seems like it would be helpful to have somebody on site but not sure the numbers would justify that.

Mindy Jensen · Answer

The 34 park-owned homes plus 7 vacant lots is the biggest issue I see. That's only 2 occupant-owned properties. Do the 2 "vacant" homes make up the other 2 properties?

Park owned means you're responsible for maintenance on 34 homes. Unless you have a plan to sell them off quickly, they could become a money pit. Average age of 1985 freaks me out, too.

Can you ditch the dumpsters and have each tenant pay for their own trash? Has the well ever run dry? You don't say what state this is in, I'm in CO and water is a BIG issue out here. Any chance to get on city water?

For fun, I might run the numbers deeper, but I wouldn't pay $1.2 for this park.

If you look further, definitely check into the well, every single septic system, and the AC and furnaces. We bought a park last year and I think I just bought a yacht for my furnace repairman...

David Klein · Answer

I own a 42 lot MHP with all TOHs.  That is ideal and I stumbled into it a few years ago before this space became red hot (like multi-families).  I am currently in contract with a 30 lot MHP with 16 POHs with well and septic.  The mantra you will read is "sell all of the mobile homes ASAP!"  That is fine if the CAP on lot-rent only makes sense.  If you do your due diligence, and the homes are in decent shape, they are really cheaper than maintaining a stick built home.  I own multiple other mobile homes in other locations and they cash-flow quite nicely.  Following the "Guru's" advice gets repeated until it becomes "Gospel".  That doesn't mean an individual deal that doesn't fit the "Guru Model" won't work, it just means that you need to go into it with realistic expectations and goals, with your eyes wide open.  It would be a bit daunting for a first deal without investing experience.  I have invested for over 20 years including SFH, Duplexes, MHP, and multi-family apartments.  My first park is a Unicorn today and I won't likely find another quite as simple to maintain as it was.  As always, let the numbers not emotion rule your decisions.

Bill F. · Answer

@Will Gaston

You are really buying two business, a mobile home park that's 80% occupied and a MH rental portfolio of 36 doors.

Others have alluded to the bigger issues of POH, well, and septic.

Before I got to any of those issues, I'd look at the MSA; it looks like that is going to be the true value driver of this deal in the long term. Is there a market for affordable owner occupied housing in this area? how long will it take to absorb the new supply? Who employs your residents?

If there is a market, how are you going to find buyers who can qualify? Make no mistake, its easy to say 'I'll sell them to the residents', but that's far easier said than done. Transition from the POH model to TOH model correctly is a labor and skill intensive proposition. Not saying it can't be done, I'm involved in a deal that is doing that now. It takes someone with a head on their shoulders to do the heavy lifting.

If you get it to nearly all TOH, it will be hard to find a manager for that few lots. You'll end up running a lot of the back of the house operations yourself. I don't know what type of connections you have in the area to PM 36 POHs if you want to keep it as a horizontal apartment building, but I'd guess they are few and far between.

Well and septic aren't bad in and of themselves, but you have to be sure you know what you are buying. If either of them goes and you can't replace them the park becomes worthless, especially water.

Overall, probably not a park I'd take on if I knew absolutely nothing about MHPs.

Lee Bell · Answer

I have heard there are 5 levels of drinking, 6 if you live in a trailer park.

Be careful.

Joshua Diaz · Answer

Definitely an interesting deal.  All the park owned homes are scary and if I bought this, I would try to make those into tenant owned homes.

Now I don’t own any MHP like Mindy but one thing I have considered is the dumpster vs. individual can issue.

With the cans you definitely save on the cost for dumpsters but then you would likely have the garbage pickup trucks coming grouch your park and wearing down your roads.  Depending on what kind of road it is, this is something I would consider.

Just throwing out another perspective.

Will Gaston · Answer

Too many smart people on here suggesting red flags for me to proceed, especially the POH and septic. I appreciate the feedback!

Christopher Bunge · Answer

Will,

I don't see the details of the wells but it is showing a $2140 charge last year for water.  Is that for the common areas or something else?

Jack Martin · Answer

@Will Gaston 34 POH is the big red flag on this deal.  It is common for owners to capitalize rental income from POH, but if you plan to convert to lot rent only, then you are underwriting income you plan to get rid of.  The most stabile version of a MH park is one that has no POHs, so I would underwrite this deal with the plan to sell all the POH and just collect lot rent and utility reimbursements.

Don Gouge · Answer

Too many items to call out but this is a BAD deal. 800k max.

Seth Parmelee · Answer

My understanding you will have extreme difficulty finding a lender due to high percentage of POH. Lenders don’t like them at all.

What do you think of this off market Mobile Home Park?

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