All Forum Posts by: Frank Rolfe

Any mobile home park has five key categories of focus:

Infrastructure

Density

Economics

Age of Homes

Location

Due diligence needs to focus on all of these. Most parks score poorly in at least one category and therefore needs the others to score above-average to offset. For example, an older park will often have a good location (because it was built in the heart of town 50 years ago) but that age will result in a lower score on infrastructure, density and age of homes. Determining the sustainable of each attribute and if, when added together, the merits of each of these five factors makes the park compelling to buy is the main job of due diligence.

5% of gross is the norm. At that type of revenue, you might consider getting a bid from M. Shapiro in Michigan who does mobile home park management on a third-party basis. They have been around for decades.

We have an option of four live events with networking inside of MHU. Beyond that you can post for partners on MHU's forum.

I found my partner at a mobile home park event that we were both speaking at. It was that random. They key is to look for people that share common goals and morals but have different skill sets. All great partnerships are defined as the strength of the union is more powerful than the two parties individually.

This is a risky undertaking. The church/non-profit is going to then let homeless people live in the trailers, and that's going to tank any possible "pride of ownership". I've never seen this work out well. I think you would be better off doing a "handyman special" (based on the laws of your state) which at least gets the home in the hands of the end user who will then be an owner and have "pride of ownership".

As far as how long you can require a home to remain in your park, that's a matter of state law. Some have no guidelines and other states have strict restrictions on how long you can restrict movement of the home as they see this as a violation of property rights. I would talk to your state MHA to learn your state's requirements.

Here's what I would suggest. Do a Best Case/Worst Case/Realistic Case analysis of this deal. Use 50% expenses for the worst case, and then use whatever you believe the best and real cases to be. If you can survive the worst case, are happy with the realistic case, and ecstatic with the best case, then you go forward. If you can't survive the worst case, are unhappy with the real case and not even excited with the best case, then call it quits.

I have not seen this deal nor do I even know where it's located at. In the photos it would appear to be an older, higher density property in a rural area. But there's something about this park that attracts you.

At the end of the day, everyone in the mobile home park business has to place their bets on what they truly believe to be a good deal for themselves. So if you think this is a great deal, then bet on it. 

I'm just trying to keep you out of trouble because I've owned around 400 parks and I'm pretty familiar with how they turn out in the end. I know that my "worst case" assessment is actually the "realistic case" assessment through trial and error. However, I'm sure Steve Jobs parents told him more than once that he was crazy and it all turned out fine.

When you put the zip code in Bestplaces.net what is the metro or county population, what is the SF home price, what is the 2 bedroom apartment rent and what is the housing vacancy rate?

Before you put a penny into this deal PLEASE read every available book on mobile home parks and do some free research by calling other park owners in the market to test your cost assumptions.

I've never seen the deal or the market, but I know that your expense ratio on a park this small is 50% or more. I've owned over 400 parks and I've owned parks just like this one and you will be lucky to hit 50% of net income when you add in all of the realistic expenses it will require. 

If you pay $550,000, your property tax bill will adjust to $5,500 per year NOT $2,000 (assuming your tax rate is at least 1% of assessed value. Your manager cost will be at least $3,000 per year. Your insurance will be around $3,000 per year. Your park repair and maintenance will be around $2,400 per year. Your mobile home repair and maintenance will be around $4,800 per year. Your utilities will be around $5,000 per year. Your back office bookkeeping and tax return preparation will be at least $3,000 per year. And just those items add up to $26,700 per year, which is around 50% without even adding all the other more minor costs.

Mobile home rentals cost an average of $200 per month or so in repairs each. You will need a ton of liability insurance with rentals -- and property insurance and worker's comp -- and then you will need a manager to show, rent and supervise all of these on-site. And then there's the issues of property tax, park repair and maintenance, bookkeeping, and about 20 other cost categories.

I've been doing this for 25 years and I can guarantee you the expense ratio will be 50% best case on this deal as you have described it. If you don't budget at least that much you are walking into a financial ambush and may not survive.

I'm not trying to be a downer, but just to keep you out of trouble.

If the revenue is $4,840 per month, then your expense ration will be 50% on this deal and the net income only $2,420 per month which makes the correct price more like $300,000 or less (around a 10% cap rate) and not even remotely close to $550,000 (around a 5% cap rate).

Unless I'm missing something here I would run away from this deal at the speed of light unless you can get the price reduced by around 50% or more. 

I have never seen this park but it would have to have a phenomenal location to make it worth going forward. You can only pay an amount that is supported by the ability to cover the mortgage, so you have to see what the true NOI is at 35% occupancy and that's your budget. If the seller wants to carry paper at some low interest rate or no payment due until you increase rents, that's fine. But replacement value on a park like that is of no value as far as what you can pay.

The big problem is: how are you going to fill the lots? New mobile homes are now costing $60,000 to $80,000 installed and used ones 1/2 of that. While you can buy a park at 80% occupancy and fill it over time, when you are at 35% occupancy you have to get to 80% before a lender will even look at it, and you are under the gun until you achieve that.

The bottom line is BE VERY CAREFUL WITH THIS DEAL. Any park that is less than 50% occupied (and we've done a ton of those deals over the past 25 years) is an extremely dangerous turn-around and will require a huge amount of capital and experience.