Analysis: Mobile Home Park in Western Illinois

[Eric Gabriel]

This is the first deal that seemed to make sense to spend the time to analyze.
Deal OR No Deal?  That is the question.

What should I be looking at? 

I'm actually interested in cashflow, but would consider a value add, wholesale, or flip.

SUGGESTIONS and WISDOM are highly sought. 

PRICE
Asking Price: $287,000 (owner financing available)
Number of Spaces: 50 (27 rented, 22 vacant according to spreadsheet $225 average monthly space rent)
Current Gross: $82,620 (not verified yet - how to best do this? bank statements?)
Current Net: $56,520 (expenses not verified - how to best do this? ?)
Year Built: 1960's (units seem to be on the older side but not owned by the park)
Parcel Size: About 11 Acres
Cap Rate: 19.69

INFRASTRUCTURE
Vacant Spaces: 22
Number of Park Owned Homes: None
Road Type: Concrete/Asphalt/Gravel
Flood Plane: No

UTILITIES (It seems that most park buyers like utilities to be connected to city water and sewer. Is this possible and at what expense?)

Water: 2 Private Wells (EPA Compliant)
Sewer: Private Sewer System (EPA 5 year Permit renewed in Jan, 2015) 
Electric: Billed Directly to Tenants
Gas: Billed Directly to Tenants
Cable TV: Billed Directly to Tenant

Trash: Billed Directly to Owner

LOCATION

I don't know much about the area since I'm out of state.  I see that the population is stable.  It's not falling, not increasing.

[Justin Ouchley]

Eric,

A few things to consider.

1.  What condition are the roads and how much capital improvements are needed there. 

2. What are the sewer lines made from? Clay tile, PVC, cast iron? With a park this old there could be major upgrades needed in the lines or continual expensive maintenance to keep the lines clear. If they say the lines have been upgraded, great, but check to see that it's the whole system, not just the last problematic portion. Ask who the owners use for plumbing issues and speak to them? If they won't give you the info, that should be a flag. If you do buy this park, factor in the cost to sub meter the water. The ROI will be huge.

3. Considering the age of the park, what size amperage are the electric panels. Newer mobiles have much higher electric needs than the older models and many older parks have never upgraded their electric. 

4. What condition are the services to the vacant lots? Are the electric/water/sewer/gas connections still intact?

5. What do the local authorities say about the park? Any outstanding or past violations?  Is the park licensed/platted for a full 50 spots or is this just a number the current owner thinks could be squeezed into those 11 acres? 

6.  Look at the lot lease agreements to verify who pays what utilities. 

7. Dont forget dumpster fees, park lighting, taxes and insurance, legal fees, lawn care/snow removal, advertising, road maintenance etc when looking at your cap rate. 

8. Who's going to manage it and what will the cost be? Check with some nearby property management companies.  Don't expect a friendly resident to jump in and do a great job for just free lot rent. 

9. How many vacant homes are there in the park?  What's the plan for them?  Fix and sell/rent out/haul off?  All options have their upside and downside. 

As far as verifying income and expenses- last three years tax records with the actual listing of expences backed up with bank statements ( if they are that organized) would be great. Mom and pops don't always have best records,though. 

Your biggest problem is the private water and sewer.  That's a deal breaker for many buyers. It's just a matter of time before there are issues .  It may be one year or 30 years but sooner or later it will be a major expense. That doesn't mean there isn't money to be made in the meantime. 

I'm not trying to be a Debbie Downer here, just make sure you go in with your eyes wide open, especially for a long distance buy. 

Good luck.