Mobile Home Park Analysis

[Bryan H.]

So I met a guy that was speaking at my local REIA about landlording. I went specifically to speak with him because I knew he had a MHP and Ive been looking into possibly investing in this. So, come to find out he wants to sell his park and use the money to upgrade to a larger park.

It's a 12 lot park, with 11 lots rented. He said he keeps one strategically vacant in case something happens to a tenant's septic, he then has a place to move the trailer. So, 10 lots rent for $250/mo and 1 at $350. Total yearly income is $34,200. Operating expenses of taxes, insurance, electric, legal, repairs/maintenance & vacancy were listed at $7892. (23%)

He is asking $220,000. I know there is much I need to investigate about the park, but from a numbers perspective, would you proceed or pass?

What are your thoughts on leaving one lot vacant as 'insurance' against an issue with the septic?

I'd have to get a mortgage to purchase. Ive seen anywhere from 20-35% down, but haven't seen advertised interest rates, what can I expect? I just need a ballpark to plug into my figures. I am using 7% now, but wanted to get a better number.

Your feedback & advise is appreciated.

[Sam Parkins]

There is a decent amount of literature out there to get help with parks.

The cap would be determined in the above scenario by taking the asking price into the net operating income, $26,308 / $220,000 for a cap of 12%. An easy way to remember cap would be to take the NOI and multiply by 10 to create a 10 cap and thus (in this market) USUALLY the max you'll want to pay for the park. I.e. you would want a higher cap than 10.

I don't know the area, but around Virginia a septic can be installed from scratch for roughly $6,000 to $8,000 (CONVENTIONAL, alternative can go over $20,000!). Call it $7,000 budget. I have never replaced one totally, only worked on replacing parts. Assuming $2000 for full removal of existing septic and $7,000 for new, you'd be looking at $9,000 or $10,000 for a new septic if one goes bad. At $250/mo income on that lot, you'd have the money to pay for that septic in 40 months, or just over 3 years. If you get to 6 years you get a "free" septic if one goes bad. Depending on how deep your pockets go and your level of risk taking, it may be worth considering getting a qualified company to inspect the septic and see the conditions (should do anyway) and try to determine how much life you'll get out of them. If they're in good shape and you plan to regularly pump them, I'd try to make the money on the lot.

Talk to a commercial banker at a local community bank to try to get your best deal.

Good luck. I'd get more information on the park and consider it...obviously knowing that I have never met a park that sells at full asking price!