All Forum Posts by: Paul Stout

Sorry for the confusion @Jeffrey H.  I was not stating that the home was worth what it will generate.  That is not accurate for the most part.  If that is the way that came off then I must clarify.  The equation to value is only used to limit the amount of money that you should invest in a home and be able to make a solid return.  I would never suggest that anyone pay more than the fair market value for a mobile home.  What I intended to convey was the fact that you should limit your investment in a mobile home to fill a vacant pad to 100 times the pad income.  Even if you find a mobile home that is "worth" $20,000 and you can buy it for $15,000 and your per pad income is $100, you are almost certainly going to lose money over the deal in the long run.Or at least that potential exists to do so.  Instead, if you purchase a mobile home that is "worth" $10,000 for $10,000 and you end up selling it after the first buyer runs off, the second buyer runs off, the third buyer runs off and the fourth buyer pays you $1 for a trampled home, you will still have added $12,000 in value to your park based on a 10 cap.  To determine the value of a mobile home you must understand the market, the type/size/layout and the condition.  Each home should be evaluated individually.  The lot rent has no basis on the value of the home.  It is only considered when decided how much home to purchase.  If your net per pad rent is $350 then you have a lot more options.  This is something to keep in mind when looking at parks with vacancy and low rents.  If you buy a park that has $100 lot rents you will have no other choice (no other smart choice) than to purchase older cheaper homes.

@William C. Hopefully the information I provided helps.  If the utilities are direct billed to the tenants, you can call the city or utility company and they will give you a list of lot numbers.  I know this from performing due diligence on parks.  I simply told the clerk that I needed to confirm that the bills were paid (since many time the park owner is responsible if the tenants don't pay) and that I wanted to confirm that they were billed separately and they printed me a list of each lot number with the tenants name.  That being said, from what I hear, the best success has been working with the manager.  It makes their job easier most times since they are responsible for marketing vacant lots and homes.  Don't be afraid to schmooze them.  I haven't met a park manager yet that didn't love cupcakes and brownies.

@Michael Fortier Michael, @Jeffrey H.is spot on.  The best ratio is 0%.  As long as you know how to analyze the deal properly, don't let park owned homes chase you away.  Finding parks with no park owned units can be difficult.  As long as you have an immediate exit strategy on the mobile homes, you can be successful.  Be sure to analyze the market carefully.  There are areas where rentals will not last 24 hours on Craigslist but you can't sell the same home for $1.  Be sure to value the homes correctly.  Do not pay any more than 25-50 cents on the dollar based on what your research says you can sell them for.  Never ever pay more for a home than what the lot rent generated in value.  To be safe, use the 100 times equation.  If the lot rent is $100, never pay more than $10,000. That way if you give the home away you still make money.  Research the values in the area.  Homes can be worth much less than you think.  Depending on the age of the homes in the park, it is not unusual to place a $0 value on the home portion of the rent and the home itself.

BTW @William C. I agree 100% with @Curt Smith  Investing in mobile homes is not for me.  It is the necessary evil that rides along with investing in parks at times but as a business, there are many easier ways to make money and few easier ways to lose it.  If you do decide to disregard that advice, be certain to get to know John Fedro here on BP.  He has beaten the odds and has figured out a way to make a good living at it.  He is the exception so follow his lead if you must do it.  

I am a mobile home park investor.   I do not invest in mobile homes through marketing.  John Fedro is the BP expert on that.  From what I understand, most people who market to mobile home owners do so through the manager for the best success. They have more success working with the manager rather than around them.  Some managers do not want Lonnie Dealers in their parks so they will not help.  Many do and contacting them will be your best bet.  

Land/home deals, aka mobile home park kryptonite!

@Mary lou L. I agree wholeheartedly with what has already been stated.  I would like to add that rural mobile home parks tend to be unprofitable because many times stick built homes in those areas can be had for the same price as a mobile home.  That is hard to compete with.  Also, renting mobile homes is almost always a money losing adventure.  If you would like to be a mobile home park investor, invest in a park.  Let your tenants or local Lonnie dealers invest in mobile homes.

Welcome @Mike Stock I am an MHP Imvestor from the Chicago area.  I'm sure you will find that BP is a valuable site.  I know I have.  PM sent.

I believe I looked at the park you are speaking of.  If it was the same one, the location is absolutely beautiful.  The reason I passed is because of the well and septic.  If you are a first time buyer, it is highly advised to stay away from well and septic.  That is especially true on smaller parks like this one.  Once you get to a large enough portfolio that can absorb a major catastrophe in $200k to $400k range, you can start adding private water/sewer parks to your portfolio.  Parks trade at cap rates anywhere from 8-20 and even lower in California.  I would personally never pay under a 9 and if it were well and or septic I wouldn't pay under a 12.  If I did the circumstances would have to be truly extraordinary.  The best way to make sure you end up with a good investment is to educate yourself.  There is more than enough good information out there that would have answered the questions you have.  Check out the podcasts from Kevin Bupp and Jefferson Lilly.  Jefferson's site has a list of books and such that are suggested reading prior to purchasing a park.  Frank and Dave are a wealth of knowledge and their study course is well worth the money.  It can be purchased on their web site or on eBay.  Mobile home parks are unique and cannot be analyzed or operated the same as any other asset.  

The reason the lower class properties appear (emphasis on appear) to cash flow better is because of the multiple levels of obsolescence you are dealing with. The market will not allow the price to be any higher due to these factors such as area, layout, condition etc. You need to calculate the IRR (internal rate of return) in order to know what your true return is. The newer nicer buildings look worse at first but a true realistic pro forma based on life cycles of everything imaginable from carpets to refrigerators to roofs etc, paints a different picture. The IRR of higher class properties are closer to the purchase cap rate or return than are the lower class. Simply put, things break and die more often in lower cost properties. There is also an unknown variable on the tenant class. Lower paying tenants typically equals more wear and tear. Become an expert on IRR before jumping in. You may soon find that the 7 cap A or B class building is much more profitable than the 12 cap C or D building. Look up videos podcasts and blogs by Ben Leybovich on BP and you will learn a great deal about this concept. Also don't forget that, even though appreciation is icing, there typically will be none on C and especially D properties even over the long haul. Some may exist on increasing NOI but not in land or improvements. Even if the NOI is increased lower class pricing has a saturation point.