All Forum Posts by: JC K.

What should you do during transaction day (closing)?

Celebrate!  By this time you’ve already notified the utility companies, got insurance figured out, completed due diligence, etc. The things that need to be done to run the business can be done starting the next day.

Do try to close early in the month and get rent income prorated in your favor. 

I would say the value increase is applicable to the park, not the land. In my mind, the value increase comes from assuming +1 to the lot rent income and NOI, and not from the value of the home. Thus, I would assume an increase of 1% since you are adding 1% to rent income and NOI.

$8.5K to buy is good, but by the time you move the home, skirt it, ad steps, hook it up, make repairs, I suspect the total cost is easily $12K to $15K per home. 100% of which will be out of pocket. 

Compare that to the financing you get when buying a park. Say the pad is $15K to $20K, then out of pocket of $4K is not unreasonable. 

Thus, looking at the numbers in a “per pad basis” we find that when you buy a home (to add to a park) you use 3x more capital than when you buy a park that already has a home in that given pad.

Unless an investor can obtain financing when adding homes, it is fair to ask:  What is a better investment, adding homes to an existing park, or buying another park.  Likewise, what is a better investment, owning a 30 pad park full of POHs or owning 2 parks for a total of 100 TOH pads (for roughly the same out of pocket investment)?

@Ed Emmons What is your strategy for filling lots with POH?  In most cases this requires a capital expenditure that should be factored in a Comparison analysis. 

Say you own a park with some vacancies and another park comes for sale. What is the best return for your investment the new park (assume 50 lots for $200K) or adding 7 POHs to an existing park (for $200K). 

In the first scenario you could be sitting on 100 pads with a $400K investment . In the second scenario you could be sitting on 20 to 25 pads and homes for a $400K investment.  Then there is the economies of scale factor. Raising rent $25 on 25 pads vs 100 pads is a difference of $22,500 at a cap rate of 10% you created $222K with $0 additional investment. The same economies of scale would could apply to submerging utilities and other cost cutting areas. 

@Ed Emmons  I believe the opposite is true.  Investing in TOH parks is a faster way to financial success than investing in POH parks.  An apples to apples comparison should include the park price.  

The bottom line is if you have $200K down it wold be better to buy a 50 lot TOH park than a 15 lot POH Park.  Now, if you can buy a 50 lot POH Park with quality homes for the same price, then you would be right. 

@Todd Hoffman First things first, how to know if it is a good deal (what metrics)?

I look primarily at COC (20% min) and opportunity to increase profit (add homes, submeter water, etc).

What questions to ask and what to look for during due diligence?  Absolutely everything. I aim to know more about the park than anyone.  There are some good podcasts on due diligence. 

10% down is good, but the valuations seems too high. It is hard to be sure without knowing what lot rents are. I tend to agree with @Edward B.  It is likely you are capitalizing POH rents.  When it comes to mobile home park investing we look to profit from renting the land. Thus, we think in terms of LOT rents.  Not to say a person can’t make money from renting POHs. 

I would prefer to buy one 45 lot park than 3 ea 15 lot parks.  Expense ratios are much higher on small parks.  In fact, you need a certain number of occupied lots just to cover “fixed expenses”. For instance, you may need profit from 3 lots to cover the manager expense, from 3 lots to cover property taxes, from 3 lots to cover water, maintenance, etc.  Pretty soon you need the profit from 10+ lots just to break even. 

This is just me, but when considering buying a park, I have a $/occupied lot figure in my head I use as a quick filter. This is varies per location. For example, if the park is in the range of $20K per occupied lot, then that park is worth a closer look, in most cases. If a park is in the range of $40K per lot, then that park better be in a great location (high lot rents) for me to take a closer look. Next I look at cap rates, COC, etc. If all of that checks, then I look for typical problem areas (sewer lagoons, poor markets, too many empty lots, etc).

As for due diligence, 30 days is very tight, unless it is 30 days after seller provides “everything!”  Even then, I would prefer more time. 

Best wishes!

First choice is to look for seller financing. If not, definitely refinance (or get a loan before buying). Try the local banks.  

My concern with your park would be how to make the numbers work with only 8 homes  Rents would need to be fairly high and/or price very low for these types of deals to make financial sense. 

I look for a deal. That could come in many forms such as low price, seller finance, low down payment, low rents, opportunity to submeter utilities, opportunity to add homes, etc. I also look for city water and sewer. A larger metro area is preferred by most investors, but if you are comfortable with the local economy and demographics you may find a lower valuation by looking there. 

Cap rates for MHPs should be about 3% higher than apartment complexes.  20% cash on cash should be fairly achievable if your cap rate is 3% higher than your loan rate and if you can get 20% to 30% down payment. 

Last, larger parks are better (economy of scales).  50 lots would be a great size. 30 is ok. 15 is hard to make work, unless you manage it yourself. 

Feel free to reach out to me. I own a park in neighboring Montana. 

I would move on. It appears the Cap rate is too low and the lagoon situation is very undesirable.