Bought a Trailer Park at auction- feeling a little nervous....

[Paul Choate]

I had been powering through bp podcasts and feeling my oats, so yesterday I went to an auction of a small trailer park just to see what it would go for. (I had previously seen it with the broker but they were asking too much.) I ended up signing a contract on it. I am feeling a little nervous and so I wanted to see if I am missing some angles.

Quickly about me- primary occupation attorney, started investing in 2006 I have 13 units of my own (9 SFR, 2 duplexes) and manage/own 4 SFR with a partner, we have also done two flips this year.

The deal- The auction did not go high enough to meet the reserve but I was high bidder and worked out an owner financed deal- $70,000 purchase, 20% down, balance financed by owner at 6% over 15 years. The trailer park is located outside a small town in Central Oklahoma. 21 spaces, 9 park owned single wides, 1 park owned double wide, 1 2500 sq ft owner's home all on 11 acres which includes a lagoon. There are no other trailers in the park (i.e. space renters). Currently 7 of the single wides and the double wide are rented out. Everything is run down and in poor shape. The owner is 80+ years old and has not been able to keep up with the place. I have looked at the two trailers which are not rented and the main home and they are going to need about $5,000 total to get rental ready. I have not seen the occupied ones. The owner does not have good records so I am taking it based on what I see. This is purely a cash flow play, I don't expect much appreciation. 

The payment is less than $500 per month, taxes and insurance are about $150 (not insuring the single wide trailers- they are not worth it). Taxes are cheap because it is probably still zoned agricultural. Should not change too much with this purchase price. 

Current rents-

Double Wide - $450

7 single wides - $300 each

Total - $2550 gross

Additional income after repairs- Main house $500, 2 singles $600

I assume it is going to take a year or so to stabilize the park after it was so run down. I am also going to be a little tight on cash because of the down payment and fix up costs. This is going to almost double my management time/costs. I am trying to move into real estate investing full-time so that is o.k. for a time. Any advice on making the transition from two full time jobs would be great!

Anything I am missing?

Thanks!

[Jay Hinrichs]

@Paul Choate 

  Sounds like a great deal I have owned 2 parks with private water and sewer.. At least here in Oregon this is very serious stuff.. And you would want to make sure you walk right into the county health department and have a chat with the head honcho.. Make sure your water system is approved . ( ours we have to monitor monthly) and that your on site septic system is good to go... Make sure you have a reputable septic company go out and give it a thorough examination prior to closing. Have a well company do a flow test and test the water for any nasty's.   If that all checks out fine then I think you got your self a winner as long as tenant base is manageable. One of my parks it was a breeze another park I had was lower end and it was management intensive from a lot of angles.

Lastly what I would do is not own any of the MH.. Sell them on contract and then charge a space rent.. you can back into your total rent. Much better to have someone owner occ the MH's so you don't have to maintain them and you should get a touch better type of tenant. rehab on old MH is a ***** parts are not off the shelf etc etc. As the tenants pay off the MH you can then slowly raise rent as well B/C they now own them and there is no place to take them you have a captive audience.  However even if lets say you wanted for one of the homes and space 300 month total.. If you charge that for space rent and sell the home for 2k and 50 bucks a month until paid.. you will still save money big time on maintenance over the course of the years.. The joy of owning a park is your only maintaining the park not the homes as well.  Hope these comments are well received and good luck on it.