10 unit mobile home park

[Nick Jansen]

I'm looking at a 10 unit mobile home park. All lots are currently full and paying $250 lot rent. All mobiles are old single wides.

Owner pays water bill of $200-250 monthly. City water and sewer not sub-metered

Garbage is $120

Lawn care is free lot rent for one renter...$250

Taxes are $11 per month

Insurance... What is reasonable??

Asking price is 225,000 but she is motivated. 

I figured 250 x 10 x 60 = $150,000

or 250 x 10 x 12 x .6 ÷ .10 = $180,000

This would be my first investment real estate so please help me. I like the lot rent only aspect and I can manage myself due to location. Negatives include the age of the homes and that I called another park and they are charging $175, the mow, pay water, and have an open lot . 

I plan to offer 150,000 but am curious how high to be willing to go. Any other issues it questions please fire them at me. 

[Jack Martin]

@Nick Jansen I agree with @Brenden Mitchum that you should line up your lender.  I will share some guidance on that here as well, but first, let's do some quick math on the deal. 

10 lots x $250 x 12 months = $30,000 (gross income)

$30,000 x .6 = $18,000 (remove 40% for expenses)

$18,000 / $150,000 = 12% cap rate 

As long as the market is strong where the park is located, that could be a pretty good deal. 

For a park that size, your only real financing option will be local or regional banks - You can find out which banks have an appetite for mobile home parks by asking the MH/RV brokers in your area, networking through other owners of parks in your area, or simply obtain list of the smaller banks in your area/region and call them to see if they have lent on parks in the past. If they have not, don't waste your time. Also, is important to note that a $200k loan takes the same amount of work as a $20MM loan, so you may come across some banks who like MHP's yet they may not show serious interest in really small deals. Another option that could work is a local or regional credit union, but make sure they already have a history of lending on MHPs so you know you are not going to be wasting your time.  

Potentially, since this park is a 12 cap deal, you could also use a private lender if you can get the interest rate down to an attractive rate.

All the best,

Jack