Tell me why I should not buy this mobile home park

[Lawrence Arevalo]

Hi All, I have been looking to get into investing but am having a hard time finding single families that make sense. In a recent search for multi-families, I came across this mobile home park for sale: https://www.loopnet.com/Listin... I don't know anything about mobile home parks, but the finances seem to make sense. What am I missing here? What are some common pitfalls of owning mobile home parks?

[Brenden Mitchum]

Hey @Lawrence Arevalo, welcome to the BP community!

Love playing devil's advocate here so I'd be happy to tell you why you shouldn't buy this park.

1. It's on Loopnet - The only way you're finding a deal on Loopnet is if it's been on there forever and you're able to get the seller to drop their price to something realistic. Any deal that makes it to Loopnet or MHP Store has gotten past a number of experienced investors already. Chances are if it doesn't work for any of them, it doesn't work for anyone. 

2. There are only 14 spaces. So, unless you live in the area or already have parks in the area, this one probably isn't worth your time. Management costs will be high and you'll likely struggle to find anyone to help with such a small park. And, you will definitely need help with your first park, even if it's totally turnkey. 

3. The numbers just don't make any sense. I'm not sure how they are calculating NOI since neither of their stated 2020 gross or pro forma 2021 gross less the expense ration result in the suggested NOI. What I do know is that they are definitely counting home rent in that figure, which is a big no no. Rule #1 of analyzing MHP is that you only count the lot rent in NOI. Looks like current lot rent is somewhere between $190 and $250 so let's just say it's $250. Assuming the tenants pay for water, a quick, back of the napkin calculation of avg. lot rent x occupied lots x 70 (conservative expense ratio) gives you the price you should pay for the park at a 10 cap ($227,500). So looks like they are trying to sell it at about a 3% cap (and that's using their bogus 35% expense ratio). Even if the homes are brand new and you pay the book value for them, this deal still makes zero sense. 

Just another awful Loopnet park deal here. Don't be the sucker that buys this one at/over asking. 

Hope this helps and please, feel free to reach out anytime if you have other questions or just want to chat MHP!