Empty Mobile Home Park Valuation

[DJ Baker]

How do you calculate the valuation of a mobile home park that is empty and with X lots ready for rental and Y lots "possible" but without road and utilities setup? I'm used to running cashflow and cash on cash ROI analysis but with basically $0 cashflow I'm not sure how to evaluate the proper valuation.

[Jack Martin]

@DJ Baker in addition to what @Rachel H. shared above, don't allow your DD period to expire unless you are confident that the demand is adequate. It's a lot of work to fill vacant spaces and they will not fill up if you simply wait for a future resident to bring a home into the park. If the current owner has not filled them, it could be because there is not sufficient demand in the market.

Anytime you will be filling vacant spaces or selling homes, the most important task to perform prior to acquiring a park is a thorough market demand study. DEMAND is the foundation of your pro forma, so don't shortcut the process. It is not that difficult if you are diligent:

Start with the apartments in the area. Call them and ask how much a 2 bedroom apartment is. It should be at least double the lot rent at a mobile home park in the same neighborhood. Then ask how many vacant units there are to choose from. If you find that the apartments have a low vacancy, that is a good sign. If you find high vacancy, that is another red flag for the market and you should be cautious. You should always consider apartments as an option for your prospective tenant, because if it costs them more to make payments on the mobile home plus pay the lot rent, they might just rent an apartment instead. Most people might miss this little nugget, but it is a quick way to determine the lack of demand and where lot rent should be in the market

Next, call the parks within 5-10 miles that are similar parks. Ask them what their current lot rent is and what else is included/excluded? Ask if they have any rentals in the park and how much those rent for. Ask them if they have any homes for sale in the park and what the details are, and how many homes have sold recently. Do they finance? How much do they require down? What kind of credit do they require? Ask them if there are any vacant spaces in the park and what incentives would they offer if you brought your own home into the park. From those calls, you will have learned what your competition is related to lot rent, the sale of homes, how many POH they have, and what incentives you may have to offer as you sell homes.

Next, you can advertise a home for sale yourself as a "test ad". Place ads on every platform you can where home buyers could be looking for an inexpensive home. The goal of these test ads are simply to find out how much interest there is in the market for the homes you will be selling once you purchase the park. Make sure to advertise in all the available channels you can find so you can perform a true test. (craigslist, FSBO, zillow, etc. as well as placing signs on the street corners in the area) You should be receiving a high volume of calls (I like to see 20 calls a week) if you expect to fill a high amount of vacancy at a park. Any less than that could be another red flag.

Take the time to do this right and you will be glad you did. If you get positive signs from all those efforts, then it's possible the previous owner was simply neglecting the park and you could have a good opportunity on your hands. Remember, filling vacant spaces and selling homes is all about market demand. Make sure it is there or you'll end up wishing you had never bought the park.

As it relates to filling up the park with homes, here are all the ways we have explored, from least amount of effort to the most:

• Advertise free lot rent for a year if they bring their own home into the park
• Work with the dealers who have showrooms and offer them an incentive to sell you their used trade-ins
• Work with MH sales people who specialize in the sale of MH only (many times they will be dealers as well, but focused only on used homes)
• Network with MH movers who often times know of used homes that could be available
• Network with wholesalers who flip MH (be aware of homes in parks with this, as most often the park will have first right of refusal and you cannot remove it from the park. Also, it is important to note that you should be respectful of other owners. Do onto others....)
• Sheriff sales, REOs or foreclosures of MH on individual parcels of land
• Hunt FSBOs down and buy them yourself

In all cases, the homes will have to be moved and set up, so you will want to build those relationships as well.

All the best,

Jack