question about mobile home park investing

[George Lekas]

Mobile home park on a lake in central Florida. Market value, 3.5 million, purchase price 2.6 million. Net annual cash flow, $575K. 91 mobile home sites, 36 RV sites, 16 rental cabins, boat rental and launch site, food and liquor sales, etc. What other information do I need to see if this is a good deal or not? Thanks for reading this, and any advice is appreciated.

[Jefferson Lilly]

George -

Understanding the P&L by each line of business will be critical.

For instance, mobile home park revenue streams are much more stable and valuable since MHs are not really 'mobile.' They cost $3,000+ to move. So they rarely do. You might see my detailed article I posted in my LinkedIn Group - Mobile Home Park Investors.

RVs however have an engine built in (or are easily towed by an ordinary pickup truck), and they come and go all day long. These streams of cash are valued much lower.

The rental cabins are an entirely different animal all together, as are the boats.

If I were looking at this deal, I'd consider buying it all (if it is really that good of a deal), and would then sell-off the cabins and boat business.

Your due diligence should consist of getting:
1. The P&Ls for the past 3 years - broken out by business line. Then verify this by:
2. Getting a copy of the seller's previous 3 years' tax returns where he/she declares their revenues and expenses to the IRS, and
3. Calling the bank where the rents are deposited and the expenses are paid. Verify, verify, verify.
4. You should also talk to the manager and assess his/her motivation and competence, but also consider changing his/her compensation structure to encourage home sales, etc.
5. I'd also drive through the property to get a feeling for how rough it is. Poor is OK, but real 'bad element' stuff like gangs and drugs is just more than most people would want to deal with at any valuation.
6. Have the infrastructure inspected. Be especially leery of orangeburg sewer pipe (in use through the 1970s). Understand if/what wells and sewage treatment equipment you'll need to operate. All-city utilities are best as they save you headaches and expense.

As a general rule, MHPs are valued at 60x - 70x the monthly lot rent, plus the value of the individual mobile homes. Do not apply a cap rate to the income from the 'wheel estate.' Only do that to the 'real estate' - but again, the 60x - 70x multiples will get you close.

I'm a MHP owner and a consultant. I'd be happy to spend a bit of time with you on the phone gratis to see if/how I might help you.

To your continued success,

-Jefferson-