1m mobile home park

[William Simmons]

Howdy all, long time lurker, first time poster!

I just ran across a MHP deal i think id like to make an offer on.  Park is in southern Illinois.

1M - Asking price 

10,000/ month income from Tenant owned homes

8500/month income from Park owned homes

city sewer, city water, all lots are individual metered

LOTS of dd to remain, but at surface level, its seems pretty good so far.

What do you guys think?

William

[Paul Stout]

 @William Simmons Be sure you do NOT capitalize the income from the mobile homes that is over the lot rent.  Stick with lot rent only.  If you want to put a value on the mobile homes do it individually and be very conservative.  If you were to capitalize the $370 per month for each park owned home over lot rent that would mean you are paying $44,400 per mobile home at a 10 cap rate (370X12/.10).  Even if you apply a 50% expense ratio you are still paying over $20,000 each! I am guessing these homes are not worth anywhere near that.  Expense ratios on the home rent portion are closer to 100% than you might think.  I would advise evaluating the park on the lot rent only and adding a very conservative value to each home separately.  (95 X 130 X 12 X expense ratio / cap rate + wholesale value of mobile homes - repair costs).  

Also, $130 for lot rent does sound low even for Southern Illinois.  Have you looked at nearby parks to see what the average rent is in your market?  One of my first questions would be why there are so many vacant lots.  Run test ads to see what kind of response you get.  Look at the average home value in the area.  Also look at the inventory of stick built homes.  If you can buy a stick built home in that area for $20,000 and there are a lot of them you will have a very difficult time competing.  

If the lot rents are low for the market and the lots are vacant because of an inactive owner/manager you may have a very good opportunity here.  Once you buy a park it is your business what you do with it.  However, if there is a demand for mobile homes in this market you are passing on a great opportunity if you do not attempt to infill the park.  Each mobile home ads not only income but value to the park (every dollar extra you bring in at a 10 cap = 120 in value).  I would also highly recommend you convert the current renters to owners as soon as possible.  Lot rental is an excellent business plan, mobile home rental is a horrible business plan.  

When you make an offer on a park remember to always leave an out by allowing yourself to back out for any reason at all during the due diligence period.  Make the due diligence period long enough to scrutinize the books to be sure that all of the numbers the owner gives you can be proven.  He may charge $130 per month but what is his collection rate?  Does he have rolling balances for any tenants and how large are they?  

Financing may be difficult with under 70% occupancy so I would suggest discussing terms with the owner as well.

Educating yourself prior to jumping into any deal is critical.  There are many great places to get this education.  This forum has many great posts.  Look at mhuniiversity.com and invest in the home study course or a boot camp.  Look at mobilehomeparkacademy.com and read the free ebook they offer.  Listen to every podcast you can find on iTunes from @Jefferson Lilly, @Kevin Bupp and @Account Closed.  Go to parkstreetpartners.net and look at the investment research and resources pages.  They are all excellent and will point you in the right direction.