All Forum Posts by: Derek Williams

Thanks for the reply Chris. I'm comfortable with all the numbers as they stand. I only use lot rent in my calculations and there are no POH anyway. Utilities are a nice quick upside - currently the park is paying water and sewer which is about 23% of rents. Total current expense ratio is about 52%. and it's priced based off that NOI. So our plan is to submeter, which will immediately pay for itself and will drop our expense ratio to a much more attractive 30%. NOI right now is about $52K without submetering. The numbers are beautiful as far as I can tell. The seller is selling because he's over 80, has a terminal illness and has been unable to really manage it well over the last few years. Thus the 10 empty lots. 5 years ago the park was full. So I'm totally comfortable with the numbers and my test ads showed me that if I can just get homes on the lots, they will fill up fast. I just want to make sure I'm not overlooking anything with regard to competing against a big player. Between the 3 parks the big dog in town owns, they own about 70% of the available MH lots in the city AND they are a manufacturer as well. And they have empty lots, so they essentially control the supply of homes and could flex their muscle to keep us from filling our lots.

More follow-up. I ran my first test ad for about 3 hours and got 3 calls. Deleted that ad, then put up another test ad for a 2BR but bumped the price up another $125. I got 6 calls and 3 emails on that ad by 10pm last night. I'm not too concerned about being able to fill empty homes and it's increased my confidence in the property as a whole. I would still appreciate any input on the big dog competition side of my question if you have any.

@Chris Reeves I have some more information.

1. Home prices - I thought the homes were all new, but the other company has a few 40 year old homes selling for as low as $13000. Then it goes up from there to brand new double wides at $50-60K. The typical new single-wide home is selling for around $30-35K and fairly new gently used single wides between $20 and $30K.

2. I ran a single test ad starting yesterday and got 3 calls so far. Because all the homes in this park are tenant owned, I don't really have rent numbers for the homes. I took my lot rent (at full price, NOT reducing the lot rent to the competitor's price) and added $130 figuring that's about what I could get a $20000 mortage on a home for.

Hopefully this, together with my previous reply, gives you the bulk of what you would need to evaluate this situation.

Hi Chris and thanks for teaching me what I need to help you help me. New investor here.

1. Prices - not sure yet. Being the weekend the sales office is closed, so I will have to find out on Monday. But they are nice homes. Definitely nicer than anything in the park I'm looking at. None older than about 10 years, and many custom built. I'll post more info Monday.

2. Haven't yet, will put out some ads and get back to you next week. With totally empty lots, I either have to attract someone who wants a place to put their home or put a home there and find someone to rent or purchase it. I assume my test ad would be a bogus home description looking for a renter/buyer, and not a "mover"?

3. Unemployment: 4%
3 bedroom rent: $930
Vacant housing rate: 9.5%
41000 population, metro area 75000
Population growth since 2000: 4%
Median Home Price: $125000
Population Diversity? Not sure what you mean there. 90% white, 60% republican, per cap income $25000, family median income $56600, 34% of households less than $30K annual income 

4. Cap rate drops a bit of course, but still above a 12.

I'm looking at a park in the midwest that is a fantastic property from the numbers. It's a small park with about 40 lots in a city of about 70000 people. 30 lots are filled by tenant-owned homes, the other 10 lots are vacant waiting to be filled. Even with the 10 empty lots, it has fantastic cash-flow and we can get it at about a 13 cap. I've gone over all the numbers inside and out and it seems to be a true 13 cap and there's strong upside in submetering and filling the lots -- if we can.  That's where I'm running into a challenge. There are 6 parks in this city and 3 of them are owned by the same company - a total of about 600 lots. This owner is also the biggest dealer of mobile homes in the area. He's got new and pre-owned homes for sale in his parks and his lot rent is about $20 less than the park I'm looking at. I don't know what the homes sell for, but they are pretty nice looking homes, I would guess on the used homes that none are older than 10 years.  My partner and I were just about to pull the trigger on this deal when we found out about this company while we were trying to find mobile home dealers we could possibly work with to get the lots filled. We happened to talk to the owner of the company (he didn't know we were in the market for a park) and he was telling us how the trend is that the little parks are dying because they can't compete with bigger players who essentially control the market. These guys pretty much control the home supply in the city and have real nice looking 4 and 5-star parks in the city that it seems people may be drawn to more than our little 3-star park. It seems like this might be a fatal flaw for this park. 

However, I also wonder if maybe the cost to get in a nicer home is still high enough that there's a market for cheaper homes. Walmart still does great against Target. What are your thoughts on going up against a bigger, nicer player? Obviously, as a small investor (with a budget in the sub-$500K range) just about everyone's going to be bigger than us so unless we don't want to be in the market, there's going to be big fish we're going up against. How do you evaluate the competition and decide if there's enough of a market to compete favorably? 

Great thoughts everyone. I clearly have plenty of due diligence to do before moving forward. I appreciate your ideas.

I'm looking at a purchase of a small seasonal park in an area that's going through a big growth phase. As part of the growth, the city is extending sewer to all properties in the city limits and requiring sewer hookup. Obviously this is desirable anyway to get off septic, but the numbers hurt in the short-run. As far as the city is concerned, the actual hookup into the new sewer will be paid by the city, but I will need to run sewer lines this fall from about 30 homes to the sewer. NOI on the park is about $40K and the seller says running the sewer lines will cost between $30K and $40K. The numbers on lot rents check out and I can get the park for a decent cap, but it's hard not to look at an immediate $40K capital expense as raising the park price by that much. Plus, I don't really have the reserves in place currently to cover that large of an expense. There's some room to raise rents, which I'd plan on doing regardless, but I'm wondering if any of you have ideas on the best way to pass this expense on to the tenants. Also, I haven't done any due diligence yet on the actual hookup process itself and if the seller is quoting me accurate numbers, so I'd appreciate it if any of you have any idea of the expense (and esecially hidden costs) I would need to plan for with a sewer hookup. I just figure if you guys scare me off from a purchase like this, I won't waste my time calling around and figuring the actual cost.

Thanks for the advice. I've had a couple other people message me with advice as well and I'll probably be holding off on this and maybe looking for a joint venture or partnership opportunity to get into a bigger park. That's new territory for me so I have some more learning to do!

Hi Community,

I'm a new investor here looking to get into my first park. I've been sniffing around for a couple months and think I've found a couple interesting ones I'm trying to decide between. Neither is a home-run, but at my budget I don't think I'm going to find the perfect park. Any input you seasoned pros can provide would be very helpful. I appreciate being able to learn about your thought process that goes into selecting an investment. 

Requirements:

Max Out-of-pocket: $85K
Primarily looking for seller financed deals since any of these smaller parks seem to require around 60% LTV to get into with bank financing.

Primary goal: Income now, with a decent exit strategy in a few years

City water and sewer

On-site manager and stable park so I don't have to put in time I don't have doing a turnaround project.

Park 1:

Sale price $450K. Rural Northern Michigan town of less than 3000 people. Closest city is over 50 miles away and it is small with just barely over 20000 people. So obviously it's a small community, but kind of a vacation town with pretty steady population that mostly supports tourist business. In other words, it's very small, but I don't think it's in danger of disappearing. Median home price $95K, but about 25% home vacancies. Rental market is not strong with rents about 30% below national average. Park has 37 lots. 7 are vacant. 13 are lot renters, 17 are POH, and those are all filled. POH are less than 20 years old and in decent shape. Park is pretty nicely maintained overall and much more visually attractive than park 2. Lot rents $215. Upside is limited - trying to fill vacant lots and I think their current insurance costs about double what it needs to. Current expense ratio about 40%. Current NOI including POH rents is ~$75K.

Park 2:

Sale price $350K. About 25 miles from Chicago in an area that has seen a pretty drastic population decrease of about 20% in the last decade but the city population is still over 80K. Lots of abandoned homes (over 25%), urban blight, and median home price of only $59K but the rental market remains pretty strong. Rental vacancies are less than 1% and rental rates are very near the national average. Park is full and historically remains full with 19 lots - 8 POH and 11 lot renters. POH are not in great shape and generally the park is not visually attractive compared to park 1. But with the surrounding area in the shape it is, it may not really matter. Immediate upside is that I can add water meters and drop expense ratio from 52% to 32%. Lot rents $285. NOI including POH rents ~$50K once water is submetered.

Park 1 seems to me the better option with immediate dollar numbers, but the remoteness and small size scare me. What are your thoughts?

Hey @Carly Franklin, I'm planning on buying an existing one. I currently have things narrowed down to a couple parks that I think will be good purchases. Just trying to gather more info and market research before I make an offer. There's really nothing local that will work for me, so I've been looking at parks that are running fairly smoothly in other states with an on-site manager so I can maybe make a few on-site visits a year. I will share when I finalize things. Good luck in your efforts!