28 lot Mobile Home Park - Good deal?

Question

Hey guys,

I am talking to a mom and pop owner of a 27 lot + a 3 bedroom house. Here are the details:

17 lot rent only at $175

4 financed properties by current owner - $175 lot rent plus remaining balances of $26600. Paying

6 rentals at $2215. He said two of the renters are only paying $175 (basically lot rent only) because he doesn't have the title to the trailers. How can I get title? Or better yet, what question do I  need to be asking about this because it seems to beg for questions.

The 3 bed house rents for $600.

He said the owners and tenants all take care of their own lawns. There is a paved driveway throughout the park that looks to be in good shape. It has a well and septic. He said the well costs $100 per month (I don't know anything about wells, please help ha) and septic is pumped as needed and he thought maybe that was once per year but wasn't sure since his son is running the property.

Ask price is $475k and he said they have offers already but he would take mine first since he didn't think the other one could close and I am willing to work with him directly (1st offer he was worried about their financing, 2nd offer has a broker, and then there is me).

Any thoughts/feedback on the deal?

The private utilities have me concerned since I've never bought a MHP.

Thanks!Melissa

Bill F. · Answer

@Melissa Nevich My initial thoughts: It is priced like it is turn key, but its not. A lot of work/time needed for a small park without much upside.

I agree that you should capitalize the lot rent portion of the income from POHs and financed homes, however your expense ration is WAY to low, like @Ryan Groene said. 50% is on the liberal side for a park like this. 30% expense ratio is in the neighborhood of a well run park on public utilities. Rough guess on the value of the park is $225k-190K.

-Can't value the notes without seeing the terms and borrower file.

- Park owned homes: Have no idea about the condition, but not having title for two makes those worth a lot less in my book.

Total purchase price hard to say, but... $350k-$215k, maybe.

Pros: Infilll the one lot, you could sell of the homes (after getting the title first lol), possible raise lot rents.

Cons: Unknown CapEx for Well and Septic, small park, unknown quality of loans made (Could have major Safe Act violations), lots of time for you to fix the previous owner's mistakes (no title, infill lot, deferred maintenance), high capital reserves needed.

Hypothetically, if you buy this park with 100% owner financing, you'll need to have $100k in reserves for this park, knowing what we know now. Of course once you get a Phase 1, get the septic and well inspected, run test ads you'll have a better idea, but in the best case you will need $50k in reserves just for well and septic.

For reference, this park, 100% full with no POH,  running like a top (50% expense ratio and $200 lot rent), and sold at an 8 Cap is worth $420k. In a perfect world you have $100k in assets (Home, POHs, notes) so your best case scenario yields about $520K in assets. How long will it take you to get there, how much work will you need to do, how much capital will you have to invest, what debt will you need to take on, those all impact your profit

Hope that helps.

Ryan Groene · Answer

your going to run at a very minimum 40% expense ratio. because it is a smaller park with lower lot rent, your not going to get the economies of scale that larger parks enjoy.  everything is the same price per home expense wise and your going to more than likely self manage this or have only a part time person in order to make a return.

Dawn Young · Answer

I've done a lot of research on mhp's, and I lived in one as a kid, but I don't own one.  Forwarned! Ignore if you want. :-)  I'll be asking questions when MY time comes, too!

But here are my thoughts, if you just want some brain storming.  In order to be comfortable with the utility situation, I'd research what it would cost to repair/replace them if needed.  And the age/condition of them, if you can.  Or if its close enough to "town" to hook into the water/sewer.  Then you can evaluate what your "emergency fund" would need to be for that, should a system go down.   A lot of the pros simply stay away from private utilities, unless they're close to town, but I think us smaller investors have to break in somewhere!

Did the last buyer put those buyers on paper contracts? or just a handshake?  Because I don't think think they can hold you accountable if he set up a fair contract and you just bought it. If anything was hazy on them, I'd be scared, but if they're fair, and the tenant thinks their fair, I doubt that would be any problem.  Most people aren't going to sue, anyway.  Is it really worth it to them?  to sue over an 8k balance?    I think if you are good to them, they'll be good to you,..... or they'll sell back the house .....or give it to you, .....or abandon it....all of which will work out in the end.  I know its not as "clean and fresh" as "paper notes" you could by elsewhere, but oh well. Like I said, if they're hazy, that's another matter.

There is a way to get titles.  I've seen articles on it, https://www.biggerpockets.com/renewsblog/2014/11/1...  But it happens all the time.  People's lives go crazy and they just walk away.  I'd start by calling the county, explain the situation.  You probably have to file some kind of abandonment paperwork.  I think its funny that he's letting them stay there for the cost of lot rent!  Hope they haven't been there more than 7 years!  Can they get squatters rights?

Is the owner a nice guy?  There's a park here in tricities, where a whole bunch of tenants are moving their mobiles out of this big, nice park, because the owner is just not nice at all.  really not nice.  I really want to buy his park!  lol.  I would be a little nervous taking over titles of abandoned houses in THAT park, just because he probably chased them off.  I'd try to let the owners know first that there's new management, and see if they wanted to come back.  Then if they didn't come back I'd have to get titles.

Just my 2 bits, worth something or not.  I heart mobile homes!

Let us know how it goes!

Melissa N. · Answer

Here's how I was doing it -

27 total lots x 175 x 70 = $330k.

$60k for the house (probably worth about 75k but to your point, I'm discounting it).

26k in financing currently so we'd take that over. Then 5k per house for the remaining 6 rentals.

Still hesitant on the private utilities. I don't know enough about wells to feel comfortable. It's the case of - I don't know, what I don't know.

Melissa N. · Answer

Thanks @Craig J. @Ryan Groene.  Yea, the private utilities are an issue. I'll see what he says. Thank you again!

Ryan Groene · Answer

@Melissa Nevich Here is how to evaluate the deal...  $175*17*12=35,700 yearly income from lot rent and number of occupied lots

37500*.5(operating expense ratio of 50%)=$17850 Net operating income(NOI).....your operational expense will/could be higher because it is a smaller park w/ such low lot rent and private utilities.

then divide that by the cap rate you want to pay, lets say 10%----17850/.1=$178,500 purchase price on lot rent only

then add in the single family home, discount it at least 30% from other comps in the immediate area becuase it is in a mobile home park after all.  or if you can parcel it off and sell it, do so to recoup more of your cash in your investment.

then add the total amount of the park owned homes inventory and youll get your total purchase price.  I woudl say just based on initial operations, i wouldn't pay more than $250k because it is a smaller park, with private utilities..

getting titles to a Mobile home is one of the most painful processes in the business. it can easy or extremely difficult depending on state.  Its basically like a car title.    Check state laws on how to get the title. some you have to fill out an abandonment form, then let it set for a number of days, just depends.

For me, i would want a higher return than a 10% cap rate because its smaller and private utilities, due diligence is your best friend when it comes to these types of utilities, check state laws on septics/wells as well.  they can/could be a problem for sure, just depends on your level of comfort/education on them.

Craig H. · Answer

@RyanGroene

28 lot Mobile Home Park - Good deal?

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