Summary
I am looking for an experienced mobile home park operator to partner with for a bid on a mobile home park that is for sale. The park is between 50-70 lots and is a 25 minute morning commute from the downtown of one of America’s top thirty cities in population and top ten in population growth and job growth. The park is listed for between $2.5 and $3.5 million. I, along with some friends and relatives, would put up 50%+ of the equity and would look to my partner to invest the balance (with potential extra-equity out of my end of the deal for the right partner).
About Me
I have a background in finance with 15 years of experience. I worked as a securities analyst at an investment management firm that invested in distressed debt, and as the portfolio manager of my own equity fund. Recently, I have put together a portfolio of rental real estate in Kansas City, Mo.
I was at my cousin’s wedding talking to a real estate lawyer, and she mentioned how lucrative mobile home parks are. This conversation and some research into the numbers got me excited about the mobile home sector.
The Park
The park consists of mostly park owned homes and is ~90% occupied. Lot rents on recently leased lots are $425 and park owned two bedrooms rent for $800. The Park is on city water and sewer, and tenants are responsible for water, sewer, and electric payments. Housing in the area sells for roughly $160/sqft. Other mobile home parks in the area have similar prices and occupancy rates.
Positives
- Lot rents are high leading to high margins on the lot rental part of the business.
- There is a critical mass of park owned homes making it economic to hire someone to maintain them.
- The $375 spread between lot rents and home rents should provide for repair and maintenance of park owned homes and some additional profit.
- Being near a major metropolitan area, the park is not dependent on one or two employers.
- If the city expands the land has the potential to appreciate.
Negatives and Potential Mitigants
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I believe high lot rents make this park more economically sensitive than parks with lower lot rents. In a downturn people who lose their jobs or make less money will seek to move away to cheaper areas (and some people who are still doing well might be tempted to move to now cheaper apartments/houses nearby). I plan on using a medium-sized longer-term loan with a medium-term amortization schedule to account for this (i.e. try not to be overleveraged in a downturn so that we don’t face a refinancing nightmare/negative carry).
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The park owned homes are old and could have lots of deferred maintenance. Careful consideration will have to go into the bid over how much it will cost to maintain the homes and bring up any that are in disrepair to a good standard, also if some are nearing the end of their useful lives how much it will cost to replace them.
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Tenants take less good care of park owned homes than ones they own themselves. However, the size and revenue per lot of this park with allow the park owned homes to be maintained in an efficient and orderly manner.
Why Do I Want a Partner?
- I have experience in multi-family real estate, but no experience owning or operating a trailer park.
- Buying a bigger park than I am comfortable funding myself is more time efficient. Bidding on a smaller park and attaining a smaller bank-loan would take a similar amount of time, but would not allow for the same economies of scale and may not allow for the same size of investment.
- I would like help valuing the park, doing due diligence, and operating the park from an experienced operator.
Why You Might Be Interested
- You can buy the size or quality of park you normally couldn’t afford or don’t want to make an all-in investment on.
- You can diversify your assets.
- I can do a lot of the accounting, legwork, and operations (once I become a more familiar with the business).
- I can provide extra-equity for the right partner. (I.E. You could invest 46% of the money and receive 50% of the ownership, whereas I would invest 54% of the money and receive 50% of the ownership.)
What I’m Looking for in a Partner
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Somebody who is looking for a long-term investment that not only generates business like returns (10%+) over the economic cycle, but provides relatively safe and comfortable lower-cost housing for our tenants.
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Someone willing to invest some of the cash-flow generated by the business to buy additional park owned homes, and bring in additional renters (if there is demand).
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Somebody with experience owning and operating a successful mobile home park.