Buying land leased to mobiles

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Buying land leased to mobiles

Robert Crossley
Newport Beach, CA · Member since 2017 · 29 posts · 8 votes
Hey everyone, wanted to put some info out on a deal I am closing currently. Feel free to provide any feedback and I apologize if I don't have all the details listed. So I laughed at my agent when he sent me a mobile park but then I looked a bit deeper at this deal and got pretty excited. The deal is for a 15 acre plot in South Carolina, 30 minutes outside of myrtle beach. The land is divided into 24 lots that all have their own septic, electric, water etc. each lot is leased to people who own their own mobile homes and they pay a monthly rent for just the land of $175 (which is a bit under valued should go up to $200) owner takes care of absolutely no maintenance, utilities, structural insurance, etc. 23/24 lots are filled with long term leases in place. Here is what I have projected Land cost $280,000 Down payment 100k, at 5.25/ 15 years Vacancy 10% Repairs 10% Capex 2% PM N/A (will explain) General Liability Insurance $800/year Prop taxes 1.4% (land only) Misc cost $160/mo So factoring in any capex and repair is me being conservative, as I explained I am responsible for very little but do have options down the road to clean the place up, maybe even buyout some of the homes to make the land overall more attractive and more profitable. The land is 5 minutes from my families home in SC so even without that the Property management is minimal but they will be handling all the rent collection and anything else that may arise. They are actually going to contribute to 25% of the deal so they have a vested interest. Here is how it plays after those projections Vacancy-$420.00 (10%) Trash- $80.00 (2%) P and I $1,515.31 (36%) Capex-$85.00 (2%) Repairs-$378.00 (9%) Insurance-$70.00 (2%) Property tax- $338.33 (8%) Total Expenses 2,886.64 (69%) Cash Flow $1,313/mo Cash on Cash return 15% Total return annualized 19% Been over this a lot and I still really like it, there is a lot of other upside potential as well. To those who are going to ask why put so much down or why do a 15 year...I'm not greedy and capital isn't a main problem form me...I'd rather build the equity faster and pay less interest . Questions, thoughts, concerns?
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  • Ben Gerald
    Grantsville, UT · Member since 2014 · 5 posts · 1 vote
    9y

    Wow Robert - I can see why you would like that deal as well. I had two questions for you. First, wouldn't it be better if you used the actual rents in your calculation instead of the potential full vacancy or are you confident you will fill that up here soon? Second, this is more general question to understand your point of view on the capex expense, but do you only figure this expense only for deals that have shared utilities or for most of your deals?

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  • Robert Crossley
    OP
    Newport Beach, CA · Member since 2017 · 29 posts · 8 votes
    9y
    Hey Ben Gerald thanks for the reply! I'm a little confused about the first question, the calculation is based off of 10 vacancy. 23/24 plots are fully leased right now but for the sake of being conservative I used a 10% vacancy rate. As far as capex I would factor that in to pretty much ANY other deal at a much higher percentage here except in this situation there is litteraly nothing to add or fix up with capital.....maybe adding a pond or new road in the distant future? So I kept it very low
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  • Ben Gerald
    Grantsville, UT · Member since 2014 · 5 posts · 1 vote
    9y

    Sorry @Robert Crossley, maybe that is my newbie speak coming out, but you did answer my first question that you used full potential rents and then discounted them in the vacancy expense. I was thinking maybe you could be more conservative with your numbers since you won't get full rents yet, but I think I am splitting hairs since that is a conservative number when you have 23 long term leases already in place. 

    As for the second question I had the same thought from the information you gave in your first post about not really having any capex to worry about. In my line of work we look for things that will need to be replaced in business or property regularly so I was curious on how you viewed that expense.

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  • Account Closed
    Johnson City, TN · Member since 2014 · 586 posts · 705 votes
    9y

    The numbers sound really good. Here are some othe things to considered. Do Tenants pay for their own water or does the park pay if? Does each mobile home have its own septic tank or do they share tanks? Is there room to add an additional field bed in case the existing one was to fail? What are the ages of the existing homes in the park?

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  • Robert Crossley
    OP
    Newport Beach, CA · Member since 2017 · 29 posts · 8 votes
    9y
    Hey Tim Chapman , great questions. Tenants pay for their own water, every lot has its own septic tank, I don't know what a field bed is could you explain that? The ages of the homes vary...as I said I'm not buying the homes the tenants own their own homes so it's going to change with time currently there is some nice very well maintained ones and some others that are older and not in the greatest shape
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  • Account Closed
    Johnson City, TN · Member since 2014 · 586 posts · 705 votes
    9y

    in a standard septic system it consists of a tank and leach lines that run out from the tank. The length of the lines vary based upon the number of bedrooms in the house and the ability of the soil to absorb water. A system can range from as little as a hundred feet of line to over 300. The area the lines are in is considered the field bed. Sometimes the field bed will fail due to excessively saturated soil or crushed lines or various other reasons. When this failure occurs, new lines must be installed in a new location.  Since all of the mobile homes in the park are owner occupied, your lack of concern about their age is natural. But the value of your park is in the ability of the lots to continue to produce revenue. The only way a lot produces revenue is by being occupied by a home that someone wants to live in. There is a lot of old mobile home inventory out there right now that will soon become become obsolete and abandoned. A lot with a nice 2005 model home is much bettering positioned to produce revenue for many years than a lot occupied by a 1980 model that has an obsolete floor plan.

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  • Robert Crossley
    OP
    Newport Beach, CA · Member since 2017 · 29 posts · 8 votes
    9y
    Solid advice Tim Chapman much appreciated. I feel the same way, apparently it is common when a tenant moves on to try to sell their home at a steep discount to the owner. My go forward strategy is take these homes that are in good condition, maybe even lightly renovate them and turn them into standard rentals, on the older ones there still may be resale or scrap value I'll take that on a case by case basis and then begin to Vet incoming tenants and establish a "housing code" so to speak going forward on appearance...this will be a multi year strategy as I can't just kick the old homes out and find great new tenants over night but I'm confident over 5 years I will greatly improve the appearance and there for the rent value
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  • Patrisha Leybovich
    Real Estate Agent · Chandler, AZ · Member since 2016 · 53 posts · 34 votes
    9y

    So this is a bit different than your typical multi-family deal.  Double and triple check your numbers. Talk to you insurance agent, talk to your CPA. If all looks good, God bless! 

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