HI, I strongly suggest you buy Frank and Dave/s MHP 30 day DD kit at mobilehomeuniversity dot com it includes a purchase contract. 50 pages LOL. Yes there's that much to consider.
The worst thing new buyers do is take the price of a park with mostly park owned homes as if that is fair value. Its usually not. In the 30 day DD kit and made very clear in the 3 day boot camp is the value of a park, the same tactic a bank's park appraisor takes is:
- consider only lot rent, or lot rent equivalent. What is the going lot rent in the area? any lot renters in the park?
- Figure 30% expense ratio
- park value = lots x $lot rent x 12 x 0.3 (expense ratio) = NOI
A well run clean park in a very good location next to jobs. Many buyers forget they are buying a tenant pool with jobs when they buy a MF or MHP. A multi door deal must have a large pool of tenants with good jobs. This is DD step #1. A park in very small town or no obvious source of good jobs, walk, no-deal!
Good smaller parks trade at 10% cap rate. Rougher parks 11 to 12% or higher cap rate.
So NOI / 0.1 = price of the park.
This probably is MUCH less than the sellers ask. We've bought one park, offered on many others, been through boot camps, talk to MHP appraisors,,, the above forumula is what a bank will use to determine a parks value so you should too. If you get into contract at a higher price and plan on bank financing,,, someones going to take a hair cut. This is the good news path. If the owner offers seller financing at an unreasonable price, the REFI math at 70% LTV best you can get for commercial deals, with no experience 1st time buyer, math shows you CANT REFI out without adding an impossible amount of NOI increases in a time frame that isn't possible. Seller financing can be a trap. A 10 yr balloon vs 5 or 7, is a help, plus the park having lots of value add opps...
Notice the above tosses out the home rent above the lot rent. Totall tosses it out!! Too much to explain here, but park owned homes due to turn over, damage, stolen appliances, wrecked ACs etc you bairly make a nickle on the home rent. The money in a park is the lot rent, owners know this, banks know this but few small park owners know this and brokers appease the sellers by cap rating the home rent making for crazy prices.
Ive posted how the big parks are doing rent to own to avoid running into problems with your states banking division in other BP mobile home threads. Search on rent to own in the mobile home forum.
Offering a DD tip: your purchase contract (get the one mentioned above) must state all MH titles must be delivered at closing. A $3k per home escrow must be set up per MH with no title at the time of closing to ensure the state and county paper work is completed to deliver MH titles for all homes.
Its guarranteed that your seller may not have all home titles. Just happens, there's fixes but it costs time and money. IE the state / counties MH abandonment process.
