Mobile Home Park - Seeking review of deal analysis

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Mobile Home Park - Seeking review of deal analysis

Michael Mies
Investor · Waxhaw, NC · Member since 2013 · 31 posts · 5 votes

1st time analyzing mobile home park and would like some critical review from anyone that’s experienced with this type of investment…

Nine (9) unit mobile home park (seller owns mobile homes) located in the Charlotte NC area.

Seller asking $379,000 (seller has agreed to carry $265,930 at 4.5% with 5 year balloon)

4 acre country setting – property is in very good condition. Average age of mobile homes is approximately 20 years, but very well maintained. Less than $3,000 of deferred maintenance identified during inspections. Average tenancy term of 4 years for current tenants. One year leases intact – no rent increases in last 4 years (increasing rents 10% on lease renewals should not be a problem).

Raw land in area sells for $18,000/acre. Estimated cost to develop raw land into comparable park is $110,000. Estimated replacement cost of mobile homes is $15,000 per unit. Total estimated cost to replicate property is $317,000.

Owner provides water (community well), sewer (individual septic systems), outside street lights and general maintenance/repairs of mobile homes. Tenants responsible for lawn care.

Income - $62,100 ($575/month/unit average)

Vacancy (8%) - <$5,175> (<5% historical last 4 years)

Expenses - $23,331:

Taxes - $1,200

Insurance - $4,500

Maintenance/Repairs - $9,000

Utilities - $1,500

Advertising - $150

Administrative - $150

PM (12%) – $6,831

NOI - $33,776 (total cash outlay - $118,970)

Mortgage Payments - $1,347/month ($16,169)

Total cash flow end of year one - $17,607

Cumulative cash flow at end of year five - $94,927

Payoff of balloon payment at end of year five - $242,416

Cash ROI – 17.14%

Total ROI - 21.46%

BTY – I’ll be using my SDIRA to purchase this property and will use cash generated from property to fund flips with other investors (averaging 15% return). At the end of five years, I would either payoff the balloon note with additional SDIRA funds and hold for continued cash flow or simply sell to another investor.

Do these numbers appear in-line for mobile home parks?

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  • Andrew Warner
    Commercial Real Estate Agent · Phoenix, AZ · Member since 2014 · 77 posts · 21 votes
    12y

    @Michael Mies A few things that you should consider:

    The park owning all of the Mobile homes is a red flag to most MHP investors. Unless you are looking for a job I would not recommend buying this park. The benefit of owning a MHP vs an apartment is that the tenants own the homes so turnover is much lower. 

    Also you mentioned there is septic and a private well. This could get ugly for you, the well can possibly be polluted by the septic system and leech field. Are they nearby each other? Definitely worth looking into.

    I personally would recommend not buying the park. However it can still be profitable. The real question is are you ready to manage something like this? It may end up being a full time job.  

    Regards,

    Andrew Warner

    An AZ MHP & RV Park Broker

    0Reply
  • Michael Mies
    OP
    Investor · Waxhaw, NC · Member since 2013 · 31 posts · 5 votes
    12y

    @Andrew Warner

    I too was apprehensive on owning a park that included the mobile homes… until I ran the numbers and interviewed a few of the existing tenants (very little turnover). Also, I’m using my SDIRA – which essentially forces me to take a pure passive route and engage a property manager.

    You hit the nail on the head regarding the septic and well – these are my greatest concerns. I’m planning on having both systems checked during due-diligence.

    Thanks for your input!

    0Reply
  • Michael Mies
    OP
    Investor · Waxhaw, NC · Member since 2013 · 31 posts · 5 votes
    12y

    Alternative option note – The current tenants I have interviewed may be interested in purchasing the mobile homes on contract and leasing the space. Comparable lots in the area go for $375-400/month. I could save approximately $800/year in estimated maintenance costs if I went this route.

    0Reply
  • Andrew Warner
    Commercial Real Estate Agent · Phoenix, AZ · Member since 2014 · 77 posts · 21 votes
    12y

    @Michael Mies It may also increase the value of the park as well or at the very least make it easier to sell when you need to. Also you can get some quick cashflow from the sales.  

    0Reply
  • Jack Knochel
    Investor · Huntersville, NC · Member since 2011 · 63 posts · 36 votes
    12y

    Michael, I am in Charlotte and my PM charges 8% until you have 5 units or more, then its 6%, that's for SFH, you could check with them on what they would charge for the mobile home park, but I would think they would be less then the 12%. Let me know if you want their contact info.

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  • Bill Jacobsen
    Salem, OR · Member since 2013 · 701 posts · 159 votes
    12y

    I would try to value the park separate from the homes. Based mostly on your numbers I get ROI of $22,190 for the park. If you value at a 10% cap you have a value of $221,900. I would value the homes at $7,500 to $10,000. At 10,000 you add $90,000 to the above $221,900 to get $311,900.

    Selling homes is a good idea.  If you sold at $12,000 at 6% over 5 years the monthly payment to the former renter would be less than $50 per month over current cost.

    Good Luck.

    Bill

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