Need help with Due Dilligence on first mobile home park


#1

First off, I have to say that Jim Johnson must think I am stalking him at this point, lol. I have posted this potential opportunity in several different sites in order to get a range of feedback–so here I am. :slight_smile: Any and all feedback is much appreciated.

Here’s what’s going on:

I had a potential opportunity come across my radar the other day, and am trying to figure out if it is a diamond in the rough or just a lump of coal. Here’s the rundown (with the info that I have so far):

  • Bank owned mobile home park

  • Asking price is $650k; bank turned down an offer at $410k, but the grapevine says that the bank is to the point that they are willing to do almost anything to get rid of it

  • Park has 168 spaces, 1 basketball court, 1 tennis court

  • Park is currently 10% occupied

  • All the non-paying residents are gone, and all repairs to the park have been made

  • Lot rent is $150 a month and includes water and garbage (park is on two wells)

  • Surrounding location is SFR with a price point of the low $100s

  • Expenses are currently unknown

  • There is no onsite manager, but all 16 of them are paying rent on time

  • There is an onsite handyman

  • The bank also owns 3 duplexes onsite and 1 single wide

  • The bank is willing to reduce their price as well as be very flexible with terms–and they are willing to finance, however, they are not willing to loan money for improvements

  • Estimated current gross income is $3500/month

  • Estimated cost for improvements (clubhouse, park) would be $100k

  • Estimated cost for additional mobiles $10k per mobile (getting them for free off Craigslist and rehabbing them)

Seems to me that this could be a diamond in the rough if some more mobiles could be placed in there (perhaps do some Lonnie deals as well as contact some other investors and open the park up to Lonnie investors?)

Additional streams of income could be added such as coin op laundry, vending machines and a club house (which would be nice and could be rented out.)

My thoughts on this would be to approach the bank with an offer along the lines of:

Purchase price to be $425k, amortized over 20 years, interest only for the first 3 years, then adjusting to principal and interest with a fixed rate of 5%, with 5% down.

I think this park could be quite profitable if a nice clubhouse, on-site laundry and perhaps a park were added. …A website couldn’t hurt either!

The long term/exit strategy would be to buy and hold for cashflow and then refi out some equity in about 5-7 years.

Any thoughts on this? Is it a diamond in the rough or just a lump of coal?


#2

how much income do you intend to take from the business the first thru the next five years first?


#3

On The Road,

Lonnie Dealers get into the business because they don’t have a lot of cash and want to generate some. The majority of Lonnie dealers don’t move ANY homes anywhere. Some of us move a few. Few of us move many.

Based on your suggested offer and 40% operating cost, you would have to put in $330/mo. to operate the park as is. It will need an additional 14 homes within the three year time frame to support the planned mortgage.

Rounding to 15 homes over three years that’s 5 homes per year.

At $8-12K each including move and set up (not including any site preparation) you are looking at $40-60K cash per year to be poured into the park. Over 3yrs that is $120-$180K. How many Lonnie Dealers near this park have the wherewithal to do this? Why haven’t they done it already?

Many on this and other sites have suggested you need DEEEP pockets or access to the same to buy this kind of park.

Now for the kicker. At the end of all your hard work for three years you are now breaking even. So you have to crank it up some more to make some money.

To me this park is worth $280K with enticing terms thrown in.

Steve


#4

Too funny…

This was my reply on another forum…

Infill parks are costly in both time and money. To pull in a home for 10k you need to buy it for under 7, and it needs to be ready to go without issues once it is blocked, leveled, plumbed, electrified, skirted and sold… Now you need to look at the benefit of filling the pads…

Lot rent is $150 per month… so some quick math…

150 (per month) x 12 (months) = your gross income- $1,800

1,800 (gross) x .7 (rough multiplier to figure net) = NOI / PAD @ $150 / month - $1,260

1,260 (NOI) / (divided by) .11 (CAP RATE) = $11,454 Which is the value of each pad if priced at a 11 CAP-

please do not try to tell me your in a 7 or 8 CAP market… I am being generous at a 11 CAP, it should probably be a 12 ($10,500).

So your spending $10,000 to increase the value of your park by $11,454…

Really this is then a Lonnie Deal Lot, and the value is the income you get off the notes…

If and only if: Pad rents were like $300 plus, in a strong 10 CAP market, and inventory was selling at a smokin rate, and IF you had (or could raise) 1-1.5 million in cash to fund homes… IF lot set up were reasonable, demand was strong, the infrastructure was secure… Then maybe this dog would hunt… but as it sits…

This dog dont hunt

My advise… find a deal that is full, or mostly full, add value by raising pad rents, restructure expenses and keep it simple…


#5

Great feedback Jim. I suppose I am hanging on to trying to make this one work because I have a bank that is willing to be super flexible, and I have very little of my own money to put into a deal (I have 6 figures worth of room on credit cards, but that seems like a bad idea since I am just learning.)

I see what you are saying about the cap rate and how that breaks down per door. …That makes perfect sense.

Maybe I should look at it from more of a Lonnie deal point of view. If I could get the bank to structure a loan–something along the lines of a flat monthly payment (maybe like $500) plus a % of rents, for 24 months, and then roll over to a fixed rate of 5% over 25 years, that might work (?) I could take over the park as manager and then started putting mobiles on site, as well as market to mobile home owners. I know that may seem like an awful lot of work, but I need some income sooner than later.


#6

That is a option. Though if your funds are limited, pulling in homes and selling them is a very expensive way of producing income. There are lots of very low down, owner financed parks out there… I am looking at a park right now that has a $500,000 price tag, and I am getting it for $10,000 down… To be fair, the park is pretty miss managed, but it is full (70ish pads) and has pad rents over 200 per month.

If your are diligent at looking, the right deal will come up. Look at your skill sets, look at your cash and find a park that fits with both. If the bank is giving it away, that is probably a problem.

In closing- there is a bank owned MHP in Michigan with 200 pads, and about 150 homes. The park has 0 (zero) tenants. They want if memory serves $200,000, interest only for like 5 years… at like 5%… anything to move the park off the books… the problem, there are no people to live in the homes…

Go to a good area, solid market and find a park…

Happy hunting!

ps- your not really stalking unless you call and ask to go to lunch…


#7

Great feedback Jim. …Is it still stalking if I pay for lunch? :wink:

…A little about the area: the area that this park is in is stable and growing. The surrounding area is homes from the $120k-$170k range. There is a military base there which has just grown and caused a shortage of about 300 homes in the area. That, and lots of people who would’ve bought before can no longer due to foreclosures or lack of funds. So the demand seems to be there.

…And I agree with you 100% that getting a mobile, rehabbing it and then selling it is an expensive way to get inventory. Any ideas as to how effective is marketing to people to come and bring their own mobile to come and live on your property?

Part of me thinks that I should move forward with this ONLY if I can lease option the park, and put all the risk back on the bank. (Key phase being all the risk on the bank.) It would give me some great experience in all facets of MH and MHPs as well as some sort of salary.

Kinda off topic, but I am a little nervous about evictions and rent collection as I am female and about 5’2 on a good day. Any tips on collections/evictions for a beginner?

You really have been a wealth of info, and I appreciate your time. :slight_smile:


#8

As for the location, there is so much that goes into evaluating an area I can not really speak to the location.

I have found if someone is moving a home into your park there is a good chance you (the park owner) is paying for that move. So in very few markets will there be demand for spaces. The fact the park your looking at is empty, is telling.

The challenge with a infill park is if you put the money into filling it, you really need the money back out on the other side. So you only exit strategy is to sell down the road. Doing a lease/option might get you in the property, but you will have a whole bunch of capital tied up in this park as soon as you pull homes in.

Lastly, I manage my managers… so evictions, posting of notices etc are always done by them… or a attorney.