Mobile Home Parks - Is this a good deal?

Question

Hi BiggerPockets Community, I'd love to get another set or many sets of eyes on this deal. This is my first MHP deal and I would so appreciate all the guidance! I'd love to share this deal as it solidifies:

- 40 pad on roughly 8 acres

- 15 pads are vacant with no mobile homes

- $790K asking

- Within 10 miles to a super Walmart

- Rent per unit is from $375 - $500

- Run rate of about 110,000 in revenue, expenses is about 33% of revenue ~$36000, NOI is about $74,000. Put this at 9.37% cap at purchase.

- There is a quite of a bit volatility year over year in expenses so ~$36,000 is a run rate but on the high end going.

- Minus: on septic tanks but all other utilities are individually metered and tenants pay

What do you think of this deal?

BEST SCENARIO

Best case scenario of renting out the empty pads of $175 *15 pads *12  month = $31,500 added revenue. Total revenue would be $141,500.

Bumping expenses by the same ratio puts it around $46,310

NOI is 95,190. Puts this at around 12% caps if operating at full capacity.

What you do all think? Thanks for any inputs!

Paul Stout · Answer

@Jane W. Is the discrepancy between the $175 future pad rental and the current rent of $375-$500 because the current homes are owned by the park?  If so it is a mistake to include the home portion of that rent in the NOI.  I would disregard it in the calculation.  You can add a fair value for each home after capitalizing the pad rental.  The next issue I see is that occupancy rate.  Why is it so low?  Is it demographics or management?  I would have a very hard time paying a 9 cap on a 62% occupancy park with private utilities and a large amount of park owned homes.  If the issue is management, infilling with new homes is not a simple prospect.  It can be done but it takes cash.  There are programs out there to help with that but you still have to find the homes.  The lot only rents of $175 will limit you to used homes.  You don't want to pay more for a home than the value it will add to the park.  If the issue is demographics then you have a very high hurdle to overcome.  A quick rule of thumb to see if you are even in the ballpark is lot rent only x number of occupied pads x expense ratio of (.4 for private utilities and .3 for public utilities) x 12 / cap rate.  Private utility parks usually trade at higher cap rates than public utility parks.  You can add something for park owned homes or contracts on top of this.  Don't overpay for these.  Most park owners expect you to pay retail for homes and full value on contracts.  That is dangerous.  This is just a rule of thumb.  There is a lot to this and it is quite different than any other asset class.  Be sure to get educated before jumping in.

Account Closed · Answer

People that REALLY know mobile home park investing don't use cap rates. This is a totally different type of investing animal. The rule of thumb is occupied lots are worth 70 times lot rent and unoccupied lots are worth half that amount. Very conservative investors value the at zero. No value is given to the trailers. In your example the park might be worth around 500k including the house.

Jay Hinrichs · Answer

my experince on the west coast is probably not germane to your market.. although I would say most jurisdictions have some serious teeth when it comes to handling private waste systems.. I simply will not buy a park that does not have city Sewer and water... I could maybe be talked into private water system.. but for me personally no way with private sewer... when a sewer system fails you could have to move all the tenants until its fixed.. if water fails you can always truck in water in a pinch..  If it was private water I would do deep research on water table water rights and likely hood of well going TU.   AGAIN just my experience's with my parks in Oregon and Wa.. and all the developing I have done in North CA... IE installing septic systems in many different scenarios and building a compact treatment plant for a subdivision we developed in Rural Nevada county CA.

Paul Stout · Answer

@Jane W. When I mentioned higher cap rates for a park like this I had 12 or so in mind.  This does not seem like an 8 cap park.  I don't know where it is so that is hard to say.  I also don't know what the market lot rents are.  You will need to know that.  If you want me to take a closer look without sharing more than you want on the forum, feel free to PM me and I can take a closer look.

Jay Hinrichs · Answer

Listen to Paul  he just underwrote your deal like a lender would.

and having had a park I  owned have the sewer system fail.. I can tell you that is not a pleasant prospect.

I would myself only buy a park on public UTLS.  but that's me because of my bad experience in the past. And it was not that sewer could even get to this park the closest sewer system was 20 miles away literally.. but when it fails.. you have to replace my bid was over 300k.  OUCHIE ....

Not knowing your area.. it sounds like old single wides as well.. those are not easy to find used anymore either..

Out our way you cannot even put them on the road so darn near impossible.  so we looked to bring in RV is that's allowed.. lots  of folks are living in those these days  think TINY homes.. but not Tiny homes..

So think you have some decent feed back... good luck hope it works out for you.

Alex Deacon · Answer

@Jane W. I would tend to shy away from this deal. Stick with what you know best. The thing that scares me the most is the septic system. That could be a huge current or future issue. Is it up to current EPA standards? If the township brings in public sewer at some point and makes you tie into it what will that cost? I stick with what I know and thats 1-4 multi family and small to medium multi family. May I suggest if you do proceed follow the proper inspections steps and make sure in advance you can procure financing for something like this.

Good luck to you

Account Closed · Answer

This is a horrible deal. Might be worth half the asking price.

Andriy Boychuk · Answer

@Jane W. you should do a good inspection of the septic system. The township enforced to connect my park to city sewer and I got to find money for it.

What is the lot rent in the park?

Jane W. · Answer

Account Closed

Thanks for your formula! I don't claim to KNOW anything about MHP. As they say, you know nothing, JW. :)I am curious about 70 times lot rent. It is very fast at getting a valuation. Is the 70 just a rule of thumb number or does it stand for an end result of some ratios?

Jane W. · Answer

Account Closed Do you have a quick formula for ballpark valuation? Would like to hear it if you don't mind share. I'd like to understand the different ways to slice the numbers.

Mobile Home Parks - Is this a good deal?

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