All Forum Posts by: Paul Stout

Thank you @Ken Rishel

I guess that answers it then.  Thanks for the rewsponses guys.

I need a recommendation on the a good mobile home park insurer in the Midwest.  I am looking for quotes and I would like to hear who has used what companies and if they have been pleased or displeased.  Please let me know if you have had any bad experiences as well so I can stay away from them.

Thanks for the bump @Account Closed I could have skipped half my email to you and simply shared this post.  Here is basically the same information that I shared with you written by one of the industries leading authorities.  

One other quick note, I would recommend purchasing the most pads possible.  You can take advantage of economy of scale.  Larger parks also attract a wider variety of investors.  You may want to consider looking for parks with lower per pad prices so you can purchase a larger park for the same outlay.  I would try to buy parks of 25 pads or more if that's all you can swing and 50 or more if possible.  it will be the same amount of work and will benefit you more in the long run.  

yes @Ryan W. posted. I think they are spot on for many areas similar to yours. It may cost you more to repair those trailers on a bad turnover than they are worth. That's not good. One of the advantages to owning mobile home parks is that when the tenants own their own homes it is cost prohibitive for them to move because of the tear down, transportation, and set up costs associated with the trailer. You lose that with rentals. Let's face it, society's best and brightest are not renting mobile homes. These people are hard on stuff and can put you in the poor house very quickly. If you own the land what can they destroy? This park seems like it would cash flow nicely at my or Curts recommended purchase prices as long as you don't own the trailer. In the real world investing has more to do with internal rate of return than anything else. I assure you the IRR of rental trailers is almost always negative.

@Ryan W. I missed whether or not this park has city water and sewer.  If it does my comments stand.  If it is private water and sewer I would probably not make an offer at all.

From the 30,0000 foot view the market looks good. I'm guessing the median home price is over $90,000. If not that should be an area of concern. Based on the numbers you have posted your actual NOI is $45,180 making the purchase cap rate 5.3 (EBITDA from lots only $61,200 same expenses as you listed). Remember that trailer rent should never be considered in the price. If you do then you are paying $384,247 for the trailers (difference between total EBITDA and lot only EBITDA at a 9.7 cap rate). Would you pay an average of $35,000 for the trailers that are owned by the park? Will you be able to sell them for at least $35,000 each? I wouldn't recommend paying under a 10 and possibly up to 12 since the park is small and will be more difficult to market on the back end. It is also less efficient from a management standpoint and each vacancy will hurt all that much more. You will want to sell the mobile homes as soon as possible. Wise MHP investors own land not trailers. I would personally not assign even $1 in value to the old flat roofs. You may put a small value on the newest three and maybe 4. Find out what you think you can sell them for and offer half that number. Be conservative. You may want to consider giving the first 6 or 7 listed to the tenants if they are good tenants. Let them pay the maintenance and upkeep. Its a win/win since their expenses will go down month to month and more importantly so will yours. If I were making an offer on this park I would probably offer $400,000 with 10% down and owner finance amortized over 30 years with a 10 year balloon and negotiate from there. Be sure your offer stipulates that you can back out of the deal for any reason at all within the due diligence period (should be a minimum of 30 days). Run a test add. If you don't get a lot of interest in the park you may want to walk away. Be sure to get solid financial information like tax returns and bank statements. Based on tax returns you will probably see that the owner hasn't reported anywhere near $82,000 income on this property.

Without any income or expense information my immediate thought is that this park is WAY overpriced.  Also, you never want to have a balloon payment less than 5 years.  In some instances three will be ok but two is playing with fire.  To evaluate this park I would find out what the income for the lot rent only is.  Multiply that by twelve months and apply an appropriate expense ratio.  That will be determined by many factors.  Divide that by an appropriate cap rate which again is determined by many factors.  If this is a perfect, clean park in a hot market with public water and sewer and all direct billed utilities you can use an expense ratio of 30% and a 10 cap.  The expense ratio and cap rate will be adjusted from there based on many factors.  I highly recommend you don't include any of the trailer rent income in your evaluation.  In most instances this is a net or even a loss.  If the mobile homes are very nice they may have some value which can be added to the value.  Many trailers have no value.  I would recommend only adding about 50 cents on the dollar for trailers.  Sometimes more and sometimes less based on many factors (see a pattern here).  This is a snapshot of what to look for based on about 5% of the required information.  I would highly recommend educating yourself on evaluating parks by researching this forum and the forum on mobile home university's website.  Also don't be afraid to invest in books and CD's.  Look up Jefferson Lilly on ITunes and listen to everything you find.  Using $250 lot rent and 30% expense ratio and a 10 cap this park is worth around $350,000.  Smaller parks should be traded at higher cap rates generally because the expenses are relatively higher.  Even if you are going to manage it yourself you still shouldn't overpay because the person you sell this park to eventually may factor in management expenses.  The bank almost certainly will which means you may end up giving the park back or paying a big gap if it can't be financed for your balloon amount.  There is so much to be said here but so little time and space.  To give a better guesstimate of price we would need to know what the current lot rent only is, what city this is located in, what the age and condition of the park owned trailers are, what type of water and sewer systems, what other utilities  exist and who pays those utilities and to whom. If you are willing to post all of that information I am sure you will get many great opinions of value.  If you don't want to post the city then at least post what the city's population is and what the median household income is and what the median home price is and how close the nearest Walmart is.  Unemployment rate would also help.

Great introduction and bio!  Welcome to BP.  I am an MHP investor.  I recently purchased a 37 unit MHP in central Illinois.  I looked for 6 months in Indiana but was unsuccessful in finding a park that appealed to me.  I came across the Illinois park and it made sense so I pulled the trigger.  I live in the South suburbs of Chicago and work industrial construction in Northwest Indiana.  Im always looking for investment and networking opportunities with like-minded people.  It's not all that easy to find fellow MHP investors in my area.