Mobile home park analyze deal set to close in December

[Mike B.]

Hey Everyone , we are currently in contract on a property on the coast in NC . 23 unit mobile home park . All park owned homes , acquisition price of 1,300,000 . I am attaching performa based on axtual expenses and income . The income is projected 21k but we wanted to be conservative and bring it down to 18k with 12% vacancy. It’s a good small market area near the beach ( 15 mins away ) steady market , and people are moving towards this area in NC . We just wanted your opinion on this deal , please be as critical as possible ! Homes are fairly renovated , most of them are 96-2000’s age , 18 2 bed 2 bath , 3 bed 2 bath . The deal cash flows roughly $2700 a month on a 20 year note , not the best by any mean but it will save us on taxes quite a bit !

[Jack Martin]

@Mike B. you have a park here with 100% park owned homes, yet the powerful strengths of MHPs exist when all the homes are owned by the residents.  If you were to quickly analyze this park through the lens of selling all the homes to residents, it would look something like this:

23 lots x $400/mo x 12 months = $110,400 (gross income)

$110,400 x .6 = $66,240 (removes 40% for expenses)

$66,240 / $1,300,000 = 5% cap rate

Of course you still have the value of the 23 homes as well, so if you place a real world value (what you could really sell them for) on each home, you would take that out of the sales price before you calculate the cap rate. Essentially, on a deal like this you are buying the homes for a portion of the sales price, and the park for the balance. 

If you can sell the homes for 20k each, that is a value of $460,000 for the homes, resulting in you having paid $840,000 for the park, meaning $66,240 / $840,000 = 7.8% cap rate for the park

If you plan to keep all the homes as park owned rentals, your expenses will be a lot higher, your tenant turnover will be a lot higher, and you lose all the powerful benefits of MHPs.  

All the best,

Jack