Mobile Home Park Analysis

[Timothy Jacob Wallace]

I've run this opportunity by some people I know, but I want more feedback.  I'm in the final stages of a  flip (contract on the property, closing in the next 4 weeks) and I'll be putting money into a new investment.

I have the opportunity to purchase a MHP that is not on the market. It is in a rural area, no real industry in the town, but within 20 miles of an area with several job opportunities, a lot of farm hand work is available as well. It is a 33 lot park, it currently has 10 lot owned trailers, 2 on lot rent, and 1 trailer that is bank owned (bank has it for sale), with 20 vacant pads. Current gross revenue is $4,925.00, property tax is $800/year, tenants are responsible for all utilities (on city sewer and water), tenants are also responsible for yard maintenance (they can pay $10 to have their yard maintained if they don't want to do it), owner is responsible for upkeep on empty lots, 3 are on HUD payments.

I own other property in the area (not rentals, recreational) and I have good contacts for maintenance and upkeep, I also have someone I trust to manage the property (I live 10 hours away, but I spend roughly 60 days a year in this area).  The lot is in a 'good' area of the town, it is easy walking distance to schools, dollar general, grocery store, gas stations, and county offices.  It is not in a flood zone.

Initial plan (could always change) is to keep the park owned homes, purchase new mobile homes as good deals present themselves, place them in park, offer a lease to own option to new tenants, transition to lot rent once the mobile home ownership transfers to the tenant.

I believe I can get this property for at least $235k, likely a little lower.  I have a few banks in the area I can acquire financing through, and I plan on putting at least 20% down and keeping at least $10,000 in an account for any repairs on park owned properties that might happen early (all trailers have had substantial work in the last 3 years, all in average - good condition)

Does anyone have anything they would recommend I look into?

[Jack Martin]

@Timothy Jacob Wallace  It's a lot of work to fill vacant spaces and they will not fill up if you simply wait for a future resident to bring a home into the park. If the current owner has not filled them, it could be because there is not sufficient demand in the market. 

Anytime you will be filling vacant spaces or selling POHs, the most important task to perform prior to acquiring a park is a thorough market demand study. DEMAND is the foundation of your pro forma, so don't shortcut the process. It is not that difficult if you are diligent.

Here are the simple steps to uncover the reality about demand:

• Start with the apartments in the area. Call them and 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 another red flag for the market and you should be cautious. You should always consider apartments as an option for your prospective tenant, because if it costs them more to make payments on the mobile home plus pay the lot rent, they might just rent an apartment instead. Most people might miss this little nugget, but it is a quick way to determine the lack of demand and where lot rent should be in the market.

• 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) You should be receiving a high volume of calls (I like to see 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.

Take the time to do this right and you will be glad you did. If you get positive signs from all those efforts, then it's possible the previous owner was simply neglecting the park and you could have a good opportunity on your hands. Remember, filling vacant spaces and selling POHs is all about market demand. Make sure it is there or you'll end up wishing you had never bought the park.

All the best,

Jack