Hi All, I am considering a park in Reidsville, NC and would appreciate input from all you wise folks. Here are the details:
45 spaces, 31 lots have homes on them. Lot rent is $346/mo. and includes trash pick up
23 tenant-owned homes.
10 POH’s 6 are rented, 3 vacant, 1 is used as the office. POH rents range from $599-699. Homes are all vintage 2011-2013 and seem to be in good shape. Park as a whole is in excellent shape.
12 vacant lots
City water and sewer billed to tenants. Paved streets with curbs and gutters. Park was built in 2002.
Park comes with 60+ acres across the street that have infrastructure installed, but has not been developed. Sun Communities developed the park but then dropped the project. I talked to the city and permits are all in order. No problems reported. Other than the park can only have 15% of the lots as rental homes. I was told they city would reconsider this if I asked. They do not consider owner financing to be a rental property.
At $20k per occupied space, (plus $100k in homes) not a bad price. Nothing you’ve said would make me run for the hills. That’s not cheap, but it’s a fair deal (probably). Others on this forum will no doubt run down the math more thoroughly – you need to have an excellent handle on YOUR expected expenses (in the form of expense ratio).
31 * $346 is your monthly gross. *12 is your annual gross. Assuming there is demand, get those 3 vacant POH filled and you can count on this $128k gross (if you move to evict non-payers and replace them with payers ASAP).
What is your net income after expenses (assume ~50% expense ratio to be safe?). If you’re paying $100k for the homes (hope you break even here) then the “park” is $600k. 10% cap?
Will you break even on the homes? (Sell them off or rent them for a minimal profit?)
Thanks Brandon. We would sell the POH’s at a minimal profit. The lot rent is high for this area, so I there is no room for a rent increase anytime soon. I estimate the NOI to be about $60k with a 50% ER. Debt service will be about $40k. That leaves us about $20k in our pocket. That is at the current occupancy. Selling or RTO the vacant houses and we have about $4000 more in our pockets at the end of the year. I am tying to get info from 21st Century Mortgage about their CASH program to see about filling the other 10 lots.
My concerns are more about the details than the numbers. Sun is a smart company and they rarely abandon a project unless it really stinks. I looked up Reidsville and it has low SF prices and high housing vacancy. It may just be that the market there is lousy and they did not figure that out until after they started the project. A test ad would have to blow it out the door to undo the damage of SUN walking on the project.
The other problem is that SUN could re-zone 60 acres in 2002 for MH. You want to be in markets that allow zero new MH to be built. What keeps ten more people from building parks down the street? Call Reidsville and say “can I get zoning for more MH in your city limits?” and if they say anything other than “NO” then run from this deal.
That property spooks me. I absolutely love the folks of Reidsville but I wouldn’t want a high end park in that area. The local demographics are much better suited for lower tiered MH communities.
It looks like a decent deal at first blush. My bank specializes in financing MHP all over the U.S. so if you would like me to take a closer look it let me know.
I looked closely at that park and passed. The regulations for that park state that you may not move homes into the park that are older than 5 years and you absolutely can not rent them out. I got the information from the city about this. Now other than that the place looks to be growing and the population is increasing. This looked like a sparkling deal to me until I talked to some folks about it and found myself much less interested in this park.
Frank and others - is that a hard and fast rule, that you don’t buy a park in an area that allows new MHPs to be built? I’m doing DD on a park and spoke with the planning/zoning department today. They basically said there is no zoning in the county and it’s very easy to get a permit for building a new park or expanding an existing park. They had one application to expand a park by 5 lots about 2 years ago, but the owner never filed all the required documents and it’s been about 20 years since a new park was built in the county.
When would you make exceptions to this rule? If the deal was good/cheap enough? At a certain cap rate or with favorable terms?
If you’re building in the county and not in city limits (or their ETJ) then you’re likely not on city utilities, in which case private utilities will be needed. Cases like this alone is a deal breaker for many here.
But just because there is a city ordinance allowing an MHP is not a red flag - in most cases it’s not economical. More below.
The typical requirements for new MHP’s - when allowed - are ridiculous. Examples - 2 homes per acre, homes must be brand new or under 5 years old, 22 foot wide concrete roads required with curbs, 50 foot setbacks with 14 foot concrete driveways, infrastructure for fire hydrants every 1000 feet, storm sewer, I can go on. The best use for land like this will never be MHP due to these ordinances. Unless you’re building a huge community and can negotiate the ordinances in your favor then it’s a non starter.
After reviewing the ordinances the question you need to ask the city is: “when was the last MHP constructed?” This will typically give you an indication their economic feasibility. Then you can drive through the park and find out their lot rent - then calculate a high level estimate how much they make yearly and compare that to the obscene development costs they likely incurred.