Mobile Home Park Offer

[Mark Kvam]

Have a park under consideration:

38 pad, 15 owner occupied, Lot rents $140/mo, last increased $20 in 2012, 23 vacant lots, single wide only, no park owned homes, Southern IL. Asking price $110K, seller financing avail.  Current owner is running it from Alaska.  A sewer line was repaired in 2012 and trees removed. 40 year old community, homes 20-30 years old.

Population of town: 8000 (20,000 within 10 miles), median household income $29,000, median rent $616, median home $62,000.

2014 P/L

Rents: $23,144

Expenses:  $9132

mgt. 1889

maint: 1032

util.: 393

trash: 2890

Lawn: 1750

Ins.:  481

Licenses and misc:  696

Net: $ 14012 (40% expenses)

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Using: 15*140*12*.5/.15=$84,000 value ballpark  assuming 50% expences and 15% Cap.

Offer: $75k, 20% down ($15K), $60K balance seller financed at 5%, 10 yrs. ($636/mo)

I would like to increase lot rent by $20/mo but have to find comps for the area to compare to.  I am at a distance (900miles) from the park.  I would plan on moving in 1 to 2 homes per year.  This would be my first park.

Any feedback would be appreciated. Mark

[Adam Johnson]

Without digging too deep into the P&L, here are a few thoughts to consider:

• a 40 year old park likely has 40 year old infrastructure.  You should prepare for some capital expenditures to update utilities that are provided by the park.  You will also find that repairs are more frequent at this age
• you don't mention if it is well or city water nor do you mention if it is septic or city sewer
• this is a tricky size park to manage from a distance, in my opinion.  It is a little too big to be small and too small to be big.  You will need to find somebody in the park or nearby to manage issues.  With that in mind, your management figure looks low.
• Why are only 15 of 38 pads occupied?  This is a key question

Not to say that this is a bad deal, just needs careful consideration.  We bought a park a year ago that had roughly 45 occupied (and paying) tenants, several abandoned homes, and dozens of empty pads, with a total of 107 pads.  We rolled the dice on it after doing our due diligence and careful consideration, we gambled that the low occupancy was due to poor management.  Coincidentally, we learned AFTER buying it that less than 10 years prior the place was full with a waiting list.  That was about the same time as a major management change, so it all made a lot of sense.  So far, so good with ours.

On the flip side, if demand is weak because of saturation of the market with other affordable housing choices, then this may not have such a great upside.  I looked at a park with a lot of vacancy that at first glance seemed like a good pick.  Then I drove through the park for sale as well as the 2 others right next to it.  I rated them "good", "better" and "best", with the one for sale being the "good" one.  The nicer parks had quite a few vacancies as well, so my upside would take longer to realize and I would have to compete by price to attempt to draw prospects.  I decided to pass on that park because it seemed like an uphill battle.

Your main competition is going to be other parks and apartments.  Look to see how strong demand is as well as how much supply is available.  I'm not an expert on parks, but I am learning quite a bit as I go.  Others may have thoughts as well.  Don't take my thoughts as bad, just giving you a few things to look at.