Help with first mobile home park


#1

I’m currently looking a 39 lot only mobile home park in the west coast (large metro area with plenty of demand/mobile home park competition) and looking for any advice/help on making a decision on it. The asking price is $850,000. From what I analyzed so far, it seems like a decent deal but I would like to see what you guys think. Here’s some details of it:

Number of MH Lots: 39

Built: 1930

Park Owned Home: 0

Structures on Park: 1 (Laundry+Office)

Water: City (Included in Rent)

Trash: City (Included in Rent)

Sewer: City (Included in Rent)

Total Occupancy: 24/39

Avg lot rent: $385 (based on current month)

Here’s some history of the MPH I found:

7/16/2008 $1,850,000 Sold
6/1/2008 $1,700,000 Sold
4/9/2004 $761,000 Sold
2/24/2017 $1,500,000 Asking Price
5/23/2017 $1,140,000 Asking Price
?? $975,000 Asking Price
7/13/2017 $900,000 Asking Price
10/18/2017 $850,000 Asking Price
Here are the numbers based on the agent ($9525/month rental income as of today):

Total yearly rent (based on 24/39 lots rented): $114,300

Expenses (agent estimate): $30,000

Management fee: $19,200

The agent said the current owner never kept good accounting and has had some trouble managing the park. He did provide me with the current rent roll, 1 year bank statements, water/sewer/gas/tax bills.

Here are the numbers based on the bank statements for 1 year:

Total income: $82816

Total expenses: $75967

The park isn’t making much profit but if the occupancy stays at its current rate or increases, it seems like a good deal to me. Am I missing anything? The park price keeps dropping but nobody is biting, is there something I’m not seeing? Oh, the agent mentioned that they took over management of the park back in Aug and am actively increasing occupancy. He said he would like to continue as the property manager and their fees are 6%. He also said average lot rent can be increased to $450.


#2

How do the expense line items on the tax return compare to the agent assumptions? Additionally how do expenses since management was taken over compare as you would expect those to be more inline with assumptions if they are doing a good job managing and the assumptions are good?

While all income and expenses are key, first focus on accounts receivable, taxes, water, sewer, trash, and landscaping/snowplowing. Those are big ticket items that should be relatively cut and dry.

Feel free to reach out to me if you want to discuss more.

Jim

Jim@Teton.Management


#3

Whenever I hear the seller does not have good records, I think they are hiding something.

How the heck can he pay taxes without a set of books? Ask for the tax returns - just the Schedule C, so he can’t cry about his privacy. Let me guess; he can’t find them.

What up with those out of control expenses? Do they include capital expenditures? Something is seriously not right. Expenses are running 92% leaving only about $7k for the owner — how is that worth $850k? For back of the envelope calculations I use expenses running at 40% of income. But then you have to sharpen you pencil and work up more accurate numbers. If you are looking at apartments start out using 45%.

How is the agent increasing occupancy? Is he moving homes in? How is he doing that? Or is that just talk. If the rent can be $450, why isn’t it?


#4

I have asked the agent if the owner can provide tax returns. The expenses were pulled from their bank statement. I dont know for certain if they’re all expenses since the statements don’t show all details. Most of the expenses are from check issued (which I can’te tell who/what it was issued for).

The agent said they’re increasing occupancy by advertising and cleaning up the park. They said that the current owner has never advertised or kept up the park. It may or maybe not work.

I guess I’ll wait until I see the tax statements and investigate further. Thanks all.


#5

Why did the asking price drop so much?


#6

Thats my concern as well.


#7

I talked to the agent and the owner has yet to provide any tax returns. The agent did lower the price to 700k and offered to sell to me for 650k. Its very suspicious the price is dropping so fast. MPH prices usually don’t drop that fast, do they?


#8

No they don’t. But most of them make at least enough money to make the sales price not a total joke.


#9

Based on numbers I would offer $600,000 and that would be my red line owners with bad records scare me I almost start going through and seeing where I can raise income and lower expenses. My park is in michigan so im not sure how things work there. But 600k would be my offer