Is this a good deal? Mobile Home Park

[Burt K.]

Found a Mobile home park for sale Asking Price: $800K includes 19 lots with 3 rented @ $175, park owned homes are fairly old & dated with 1 newer home. 15 Rents ranging from $400-675 per month. 2-3 homes will be vacant in the next month. Total monthly rent roll is around $8,000 - 8,500 today, which I believe they are over estimating and underestimating expenses of course! Two additional lots vacant (1 home fire damaged, 1 camper spot) significant value add opportunity with 1 single family home that might be able to be duplexed work was done on the house with no permits. A separate garage that can be renovated into a second single family home. Roads are not paved which worries me to get a loan, theres a long electrical wire that I think needs a pole. My point is with all said and done I think a rough estimate is looking at $150-200K to get the park updated and infrastructure up to par. Through my analysis I believe and would feel more comfortable at a valuation of $450-550K maybe $650K but would like to be all in around there considering the current condition its in, but want to get the communities thoughts, as this would be my first Park deal.

[Randall Alan]

I'm probably not the right one to answer your question, as I buy houses... but will offer up this:  Mobile home parks are not a great long term investment in my book.  Banks don't value them like brick and mortar homes.  They don't see the trailers as an asset like they do traditional homes.  You will also be typically dealing with a clientele that is a step or two below that of what home renters are.  

I would suggest doing a cost benefit analysis between investing $200,000 in houses, versus the Mobile Homes.  Presuming you have 20% to put down, you would put down $200,000, and finance $600k.  Your P&I on the loan will be about $3,100 on a 25 year note (you will likely not get a 30 year note on a park).  Then there is taxes and insurance.  I have no idea what those would be for you, but lets say its $4,000 for taxes a year, and $2,000 for insurance.  So $6,000 a year is $500 a month.  So maybe your expenses on $600,000 are $3,600, netting you $4,400 using your $8,000 figure.  Lets say maintenance is 10% of your gross... so $800 a month.  You are now at $3,600 a month net.  You will lose some to vacancy.. lets say 5%... thats another $400 a month... so maybe you net $3,200 a month.  You are also responsible for more things... roads, bigger septic systems, etc.

With the same $200,000 lets look at what you could buy brick and mortar. I can buy $75,000 houses that rent for $1,000 a month in my area... thats a C class property... average condition, in an ok, but not awesome neighborhood. I'll net $400 a month after PITI and a $100 a month maintenance reserve. I'll get better loan terms 30 year loan through residential financing and put down between 20 and 25%... So even if we go with the 25%, it will cost me about $22,000 per unit for down payment and closing. At some point you could run into reserve issues and Fannie Mae restrictions on total properties owned, but at that point you could flip to commercial financing and keep going. So with the same $200,000 down you could THEORETICALLY buy about 9 properties if reserves weren't an issue. 9 houses grossing $400 a month will net you about 3,600 a month. Factor in a 5% vacancy and maybe you'll be around $3,000.

Here's where the houses will win:  

1.  They Appreciate way faster than a mobile home.  This one can't be understated.  We've had properties appreciate by $30-$40,000 in 2-3 years.  Your mobile homes won't do this!  They are depreciating assets from what I have seen.

2.  You can sell individual houses for a profit at any time.  Sure, you can sell a mobile home, but I challenge you to do it for a gain like you can a house.  Plus, you have to pay to move it! lol!  Just no comparison here.

3. Your clientele will be better.

4. Way less people to deal with (9 versus 19)

So Obviously I favor the brick and mortar homes.  Not sure what your experience level is in real estate whatsoever... so if you are a mobile home investor, I'll respect that... but I don't think buying into a mobile home park is a good investment VERSUS traditional real estate.  They look good on paper, but I don't think it will work out as well as traditional houses in the end for you.  

All the best!

Randy