All Forum Posts by: Daniel Ryu

@Stryker Brown

Ask him for a Rent Roll and P&L.

Ask him do these represent normal operations going forward?

Review his expenses - do they make sense? If the Expense factor is below 30%, likely there's something missing. For smaller parks the expense ratio usually are higher (40%+)

Review his income - was the monthly income stream consistent? Did they factor in collections loss or vacancy?

Based your offer price on his current NOI (with your adjustments) divided by the market cap rate.

During the due diligence period, if you get it under contract, you'll have to try and confirm as many of the P&L assumptions as you can. If you find evidence (ie utilities were way higher than stated), you let the seller know what you found and see what explanation he gives. If there are enough issues, then you'll likely have to ask for a retrade on price. 

RE Cap Ex: Ask yourself - if I put in a $100K in cap ex, what value will I get from that? it's like remodeling a kitchen before you sell a home. If it costs $50K to remodel and it only adds $40K of value, then likely you won't do it. If the cap ex exceeds the value created, then you'll need to get some of that cap ex discounted from the price.

Instead of valuing the empty lots, think about what the exit price will look like and if you're going to offer more than the current value, ask yourself how much of the value add am I willing to pay for upfront?

The empty lots or 'undermarket rents' - that represents your value add that you earn for doing the work to drive the NOI. In a competitive bidding situation, you might have to pay more to win the deal. Just keep in mind the more you pay, the lower your return. Know what your walk away number is.

Also keep in mind that buyers set pricing, not sellers. If no one's willing to pay his $400K price then eventually, he'll have to come off that number

(note: I've been involved in deals where the seller is valuing the park based on the 'redevelopment' potential and not as an MHP - if there's a developer that's willing to pay, then they'll outbid me every time)

While buyers set pricing, though, sellers set timing! It may be awhile before the sellers are willing to accept what the true market value is.

That's where it pays to continually follow up.

@Ephraim Bistritzky

When you say the parks are overpriced, do you mean that you think the cap rates should be higher or that the underwriting is not accurate?

In either case, if you like a park but think pricing is off, submit offers and talk to the brokers about how you got to your pricing. I've seen extremely overpriced parks sell for much less than list. I've also seen fairly priced parks sell for much more than list.

Although cap rates for listed deals generally fall between 5-8% there is a lot of variance in underwriting and assumptions. The good thing - if you won't buy it for the listed price, likely others won't as well. 

@Jen Bastian

1. List price is not as important as the underwriting. Parks are 'mispriced' all the time, though typically they're priced more than their current value. 

2. What assumptions need to happen in order for the mobile home park to achieve the returns that you're looking for? How aggressive or conservative are those assumptions?

3. Buyers set pricing, not sellers. So if other willing buyers will pay more, then that's what the price is. 

4. If it's an experienced buyer that appears to be "overpaying", likely that buyer is comfortable paying more than it's currently worth because that buyer has a strategy to add value to the park through infill, rent increase, rebilling W/S, etc. 

5. Or the buyer(s) may have an alternative reason that makes them comfortable paying more. For example, if the buyer is local and owns other parks nearby, that buyer may be willing to pay more because then they can hire a manager to operate both parks, etc.

6. Ask the broker - will there be rounds of bidding where the seller takes the best offers and asks everyone to resubmit? 

7. In this end, if you feel comfortable submitting at list but not above, I'd still submit an offer. Maybe there are other terms you can offer that might make your deal the most attractive. And maybe the other offers are not as solids as the broker thinks.

@Thomas Donnellan

Here's a list of syndicators on MHI's website (Manufactured Housing Institute):

https://mhbuyersguide.com/manufactured-housing/acquisitions-capital-investments/

Best of luck!

@Tony Aguilar

If you're just getting started, a good thing to do is connect with some local mobile home parks and ask if they're looking to buy homes.

Then you can drive for dollars and find homes for sales - send pictures to the owner and see if they're willing to buy it.

It takes trust and knowing what kind of homes the park owners will buy - but if you do this, you can pre-sell your homes before you even buy it. And the park owners will pay to move it.

Speaking of which, if the homes are too old, they probably can't be moved. Also, knowing what type of repairs are needed and the cost will help you negotiate the best price on the home (and don't forget the spread that you'll need to add on when you resell to another park owner).

One thing to watch for - some park owners will not want to poach homes from another park owner. They don't want to start a 'war.'

@Justin Johnson

I love the Lexington area and all the horse farms - beautiful country out there.

(The nearby bourbon distilleries also make it fun ^^)

If you find a mobile home and you're trying to resell it to the owner, then yes, some will absolutely pay to have it moved to their park. 

@Stryker Brown

I visited Atlanta last year for the first time during a road trip across the country. I didn't get to visit the Coke Museum though, which I had been really looking forward to!

When calculating the value of park using a cap rate, you'd apply the cap rate to the existing income stream and the calculation you're applying would be used to estimate the potential 'exit' value, after you've filled up the park.

Otherwise you're paying for the future value of the park and not the current value.

@Alanna M Small

Sure thing!

@Matt Wilkes

Will do!

@Matt Wilkes

I posted a video on my Youtube Channel as to how to use listed MHPs to build a broker's contact list and start to get their mailings - you can check out my channel if you're interested.

Yep - the MHP community is small. Today I was telling one of my KY contacts about an MHP that recently traded in his neck of the woods - he laughed and told me that he owned it about 3 sellers ago. LOL