Mobile Home Park Questions and Advice

[Robert Lindsley]

Hi there,

I have been interested in mobile home parks for a while.  Over the past year I've been researching and running numbers on multiple parks but haven't found anything that financially makes sense.

Last week I found a park that looks to be an ok deal.  It's a small park (17 units) and it's cash flow positive out of the gate and has seller financing (a huge plus for me).

But after doing some research on the park, I found some concerns:

- 3 months ago, a couple was arrested for making meth in one of the homes
- There's a level 3 sex offender living in one of the homes

The park definitely needs cleaning up, but those two things so far are the scariest to me.  I have no idea how to even approach these issues.  

Can I kick these people out?  What can I do with the home that the couple was making meth in?  Can it be 'cleaned up' or should I just junk it?

Any park I buy, I would want it to be a place where good, family oriented people could live.

Here are the financials:

Purchase price: $164k

Finance amount: $129k @ 6% for 20 years

Monthly income: $4,480

Monthly expenses: $4,022 inc:

- Repairs 7%
- CapEx 7%
- Vacancy 7%
- Maintainence 10%
- Taxes $1142 per month (yikes!  This is the scariest financial expense)
- Water $462 per month
- Mortgage payment $923 (seller financed)
- Misc other expenses

I'm going to try to figure out a way to lower the taxes.  Also I'd like to try to see if I can meter the water individually removing that expense.  Finally, I figure if I can clean up the park I can begin the process of raising the slip rent making it more profitable.

What do you think?  Is this something I should put my time and energy into?  Is it worth it given that I have to deal with sex offenders and people cooking meth?

Thanks!
Robert.

[Jonathan Towell]

I highly recommend "The Mobile Home Park Investing Podcast" by Kevin Bupp and Charles DeHart. I've listened to every episode and we are now prospecting for mobile homes, ready to jump when we find a good one. Their podcast talks through all the questions you're raising.

For your park in question... I wouldn't be afraid of hard work. However, I'd want to get paid for it. The goal is to buy at a fair value (or a deal), then drive the rent up while lowering expenses.

Fortunately, those things go hand-in-hand with evicting troublemakers. As you remove the meth heads, you'll be able to attract better tenants at higher rents (in theory). 

If you could increase average rent by $50/pad and lower expenses by $25/pad, that will add $1,275 to Net Operating Income (NOI). At a 9.5% cap rate, that raises the value of the property by $161k. Of course, I just made those numbers up. The question you'll need to determine is what kind of value can be added and if it will be worth the trouble. Personally, I wouldn't mind dealing with some headache tenants and managing a property to add $160k to my net worth.

I hope that helps. I wish you the best.