Help analyze this Mobile Home Park deal in Indianapolis

[Jim Kimmer]

Hi all,

Would like to get feedback of a possible mobile home park deal that I have on contract in Indianapolis, IN. 

It is located 4 minutes away from the Indianapolis Speedway, 10 minutes away from downtown, and resides in a C-class neighborhood of Indy. 

11 abandoned mobile homes (1960’s and 1970’s models) on the premises. All of them would be transferred over to the new owner. Exteriors of the home are in average condition. Interiors of the homes are unknown (fire department boarded up the doors and windows to each home). All back taxes owed on the homes will be paid by seller (the bank). This park was abandoned about 1.5 years ago after the owner defaulted on the loan, and hence all utilities were shut off, forcing all tenants to leave. I called the State department of Health and they stated that mismanagement of the park from the absentee owner caused the park’s dysfunction. 

- 18 lots.  11 abandoned mobile homes.  7 empty lots.

- A 3 BD/1.5 BA also resides on the property...which was used as a 2 BD/1 BA and office.

- City water/sewer.  Water is master metered.  No sub-meters installed.

- Paved roads.

- Electrical AMP needs to be updated for all lots.

- Trash utility included as part of property tax payment.

- Market lot rent: $410 - $460.  Market rental rate: $700 - $850

- $250,000 offer accepted by seller, 35% down, 20 yr amo, 7 yr balloon, 7% interest rate. Offer contingency rests heavily on condition of the park and the interiors of the abandoned homes...and assessing whether these homes can be repaired—and if so, will it cost me an arm and a leg to repair 1 or 5 or 10 of them.

Obviously, this is a distressed, non-performing MHP, which has a ton of risk. The positives are the attractive city location within a big, growing population...in a city with strong job growth within the health and education sectors, among other big employers. 

I’d like to get feedback on this mobile home park, and specifically, is it worth my time and money? Or am I better off passing on it? I’m supposed to go to Indy in 2 weeks to visually inspect the grounds and interiors of the homes with the broker and a mobile home contractor. 

I own a portfolio of 2 cash flowing multi-family properties in Southern California, but this would be my first MHP deal. I reside in Southern California.

[Don Gouge]

The existing mobile homes are a liability. Mobile home manufactured before 1977 used aluminum wiring and are considered a fire hazard. Most of these homes are narrow and make for very small rooms and are undesirable. Honestly, you should figure the cost to dispose of these units and start new. For a lot to have any value it must have a home on it to produce revenue. You need to calculate the cost to acquire 18 new or used mobile homes moved and set up on your lots. Used homes are pretty hard to come by if they are decent. You don't want to waste your time moving an older home. Add the cost of these homes to the electrical upgrades and the demolition and cleanup of the park. Here it the real number you need to be concerned with.