Here’s the situation. I’ve found a great deal with a significant value add opportunity and the numbers look fantastic. However, the data on the location isn’t so hot. Population has declined 20% since 2000. Crime rate is 4x the average and the poverty level is around 30%. A little nervous after researching the city. What do you guys think?
I look at deals from 2 angles (aside from numbers/financials of course). I look at the amount of value add that needs to be done. If its a complete turnaround I personally don’t have time and desire for that. Also I look strongly at exit strategy. I am not holding on to these parks forever. So I gauge how the heck will I get out of it in 5 to 10 years. There are some really good areas that will sustain a MHP but in many of those areas you will probably be hard to get rid of them.
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As @WhiteTrashGator said, exit strategy should always be something you consider. To lenders and buyers, the market is often times weighted heavier than the financials. I mean you could have an amazing park in Louisiana that no one wants to touch just because of where it is. So while you may purchase at a higher cap rate which is nice, more than likely you’ll have to sell at a higher cap rate too. Just keep that in mind when you’re considering all the relevant metrics.
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@WillGraham - the old adage of real estate “location, location, location”, definitely applies to mobile home parks. I’d dig deeper to get more info.
A few questions I’d consider:
Are most of the units tenant owned homes or park owned?
What part of town is in it? Some internet resources are misleading to the actual information of the submarket
However, with real estate and all investments your biggest interest should be your downside risk. If all those things are true I’d much rather prefer to own a crappy asset in a thriving market than a great one in declining one. You can’t change the area around you.
Will,
This is a consideration with all kinds of investments. Do the good qualities outweigh the bad? It might help to rephrase your question as follows:
How good would the numbers have to be to make it worth owning something in this market?
And to consider the additional questions: How long do I want to hold this park? What is my exit strategy? Who would buy it from me at that time and why?
Hope that is helpful. Good luck. Please let us know what you decide and how it goes.
Thank you,
JayDub
I look at the amount of value add that needs to be done. If its a complete turnaround I personally don’t have time and desire for that. Also I look strongly at exit strategy.