Mobile Home Park Preliminary Analysis - Newport, NC

[Padric Lynch]

BP!

I have been dedicating my time, energy, and resources to understand and find mobile home parks for sale in Craven, Carteret, and Onslow County areas in North Carolina. I found a park in Newport, NC that may have potential. I just walked the property with the owner and received the surface level information for the park. The park will definitely be a turnaround, value-add project. This is making it challenging for me to formulate an offer or to realize that this will be a money pit / time suck! This is what I currently know:

The Park

Location: Between two military bases and close to the beach.

-31 spots

-16 septic tanks (two spots to each tank)

-Lot rent $200

-5 Tenant owned homes (TOH)

-1 Park owned home (POH)

-About 3 vacant homes able to be renovated

-About 4 destroyed homes that need to be removed

-18 vacant spots

Income (monthly)

-$1,200, not including the POH rent, only lot rent.

Expenses (monthly)

-Trash $400

-Environmental inspections for homes moving in $40

-Street Lights $240

-Capex $40 (Roads, Well pump replacement)

(Still formulating what other monthly expenses there will be i.e insurance, management)

-Total: $720

Other Details

-On well water

-Individually metered for electric

-No property management

-About (1/3) of the park in a flood zone

-Flood zone spots require a FEMA foundation (2k-4k to build)

-Owner owns free and clear, seller finance is a possibility

I have been thinking about offering the following options to the owner:

1. $100,000.00 Cash/Bank Financed.

2. $118,250.00 Purchase Price, $10,000.00 Down Payment, 180 Month Term, $601.00 Monthly Payments, 6 Month delay in payments (In order to create cashflow).

3. $136,600.00 Purchase Price, $5,000.00 Down Payment, 240 Month Term, $548.00 Monthly Payments, 5 Month delay in payments.

4. $167,000.00 Purchase Price, $0.00 Down Payment, 360 Month Term, $464.00 Monthly Payments, 4 Month delay in payments.

The Downside

The moment I add in the seller finance debt service, the deal is negative cash flow by $100-300 each month. That is why I would have to delay the initial payments while I would be moving homes into the park. The price looks like it will have to slide to the left. I’m just debating whether the upside potential is worth the dig to get out of the red initially.

The Potential

I see myself filling up the park with a diversified mix of old to new homes, "renting to own" each, and raising the lot rent to market ($250). Endstate would be 31 TOH paying lot rent. That would be $93,000 in gross revenue. My incomplete/proforma for expenses has me guessing at about +/- $20,000. $73,000 NOI. At an 8% Cap the 100% paying/occupied property could be valued at $584,000.

Am I being too optimistic here?! Please, insights, opinions, words or caution are welcome. Rip into it! Thanks!

-Paddy

[Jack Martin]

@Padric Lynch before you take on a project like this one, there are  3 critical items you will need to get clarity on. Market demand, the right strategy to fill spaces, and access to contractors.  The most important one being the demand in the market.  Start the study by taking these simple steps:

• Call the apartments in the area that are of similar class. Ask how much a 2 bedroom apartment is? It should be at least double the lot rent at a mobile home park in the same neighborhood. Then ask how many vacant units there are to choose from? If you find that the apartments have a low vacancy, that is a good sign. If you find high vacancy, that is a red flag for the market and you should be cautious. You should always consider apartments as an option for your prospective tenant, because if if it costs them more to make payments on the mobile home plus pay the lot rent, they can just rent an apartment instead. 

• Next, call the parks within 5-10 miles that are similar parks. Ask them what their current lot rent is and what else is included/excluded? Ask if they have any rentals in the park and how much those rent for? Ask them if they have any homes for sale in the park and what the details are, and how many homes have sold recently? Do they finance? How much do they require down? What kind of credit do they require? Ask them if there are any vacant spaces in the park and what incentives would they offer if you brought your own home into the park? From those calls, you will have learned what your competition is related to lot rent, the sale of homes, how many POH they have, and what incentives you may have to offer as you sell homes.

• Next, you can advertise a home for sale yourself as a "test ad". Place ads on every platform you can where home buyers could be looking for an inexpensive home. The goal of these test ads are simply to find out how much interest there is in the market for the homes you will be selling once you purchase the park. Make sure to advertise in all the available channels you can find so you can perform a true test. (craigslist, FSBO, zillow, etc. as well as placing signs on the street corners in the area if you can) You should be receiving a high volume of calls (shoot for 20 calls a week) if you expect to fill a high amount of vacancy at a park. Any less than that could be another red flag.

Once you complete the demand study, you will have a much clearer picture whether you can even sell homes in the park or not.

The second factor is cost. In our parks, we have found it to be more cost effective to renovate existing homes, especially when you consider the the cost to remove an old home, and then move and set up a home (new or used) will cost you 10k. We spend about 12k on average to renovate a home, they are really nice inside and out when we are done, and our new residents love them. Plus we can sell them for less since we have less into them. 

The third factor is access to good contractors. If you cannot locate experienced contractors who specialize in mobile homes, renovating them will be extremely difficult.

With all that said, the demand study should be your first step.  

All the best,

Jack