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 !
Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
5y
@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.
Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
5y
@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.
I Agree with you on the evaluations . We had the same estimates when we broke it out , $850,000 for the land and $450,000 for the park which we think is $220,000 over priced . We have considered after a year or 2 after collecting income , to sell the homes for 10-14k , its hard to sell mobile homes , but in a fantasy world , lets say we were to sell them for 12k which would get us back $276,000 , we of course hope to have made money in this time frame to justify the sell . After 2 years of income , and with the selling of the homes , we would estimate we ( theoretically ) purchased the property for roughly $ 900-950 K , which is still over priced for the dirt , but there is no other options honestly for something quick to purchase before the end of 2020. I guess our question is , would another seasoned Investor purchase this property or would he look for another deal ?
Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
5y
It really depends on the location, your yield expectation, and your investment goals. Seasoned park investors are more likely to buy larger parks, so that is not a fair question since there are only 10 spaces there. If you have never owned a park before, buying one in your own backyard is a smart idea, so that is a plus on this deal. If the market is decent size with a growing population, you can always sell it after you learn all the great lessons your first park teaches you. Maybe you should make an offer and see what happens. If you get the price you want, you can decide. If you can't, then the current owner decided for you.
Great points , I should've clarified earlier so thats my bad . This will be my 2nd mobile home park , i have 12 units 10 mins away , this park is 25 mins away . We are in contract currently at 1,300,000 , waiting for an appraisal . But I do appreciate all the good points you've made . We'll see how it works i guess . I didn't know if in todays market people are holding out for better returns .