Please Provide Feedback on First Time Investment


#1

Deal highlights:
• $730,000 for 71 space MHP located in northeast
• The current lot rent is $266 (includes water / sewer / trash)
• 44 out of 71 spaces are occupied
• 43 tenant owned homes / 1 park owned rental
• Well water / septic (two tanks for park, one tank is currently sufficient to service the 44 occupied homes)

Demographics:
• Closest metro area is 18 miles / 30 minutes from MHP
Metro area
• Population: 144,590 (5% decline from 2000 census)
• Median income: $45,020
• Avg. home price: $67,800
• Unemployment rate: 6.3% (versus 5.2% Nat’l)
• Closest Walmart Supercenter is 15 miles / 27 minutes

MHP P&L (2018 full year):
Rental revenue / utility bill backs: $152,000
Annual Expenses: $ (70,000)
NOI $ 82,000 (46% OER)

Value Add Opportunities:

  1. In-Fill Vacant Lots
    Test ad results:
    o Day 1 (Sunday): 3 texts / 4 calls
    o Day 2: 1 text
    o Day 3: 1 text / 4 calls
    13 unique contacts in 3 days thus far

  2. Lot fee increase
    Local rent comps from parks 30 minutes away
    o Park 1: $400 (includes water / sewer / trash)
    o Park 2: $460 (includes water / sewer / trash)
    o Park 3: $480 (includes water / sewer / trash)
    *Parks 1 -3 are all owned by same large-sized corporate entity

Miscellaneous information:
• Owner said he did not devote any time or effort to lowering vacancy rate. He owned multiple communities and self-storage facility and has a full-time career as an accountant.
• The park appears to have been offered for sale in 2012, but I do not know why it was not sold.

Pros and Cons:
• Pro – upside with rent increase and in-fill is very high if demand for homes is real
• Con – the rural location and private utilities will present obstacles to selling the park


#2

Assuming you’re a willing buyer of private utilities, the red flag for me would be $68k median home price.

Do the parks 30 min away have similar median home prices in the vicinity? Are they full?


#3

Park 1 is 74% full and the median home price in that metro area is $138,400.

Park 2 is 81% full and the median home price in that metro area is $138,400.

Park 3 is 91% full and in the same metro area as the park I have a contract on.


#4

I’m also close to a purchase agreement for a park where the numbers look good but the average home cost in the area is pretty low. That is by far my biggest concern. The immediate neighborhood (1/2 mile radius) has some VERY low home prices but they are foreclosures and they are gutted. People would have to put a lot of cash into them to get them livable and the vast majority of people cannot obtain a construction loan or the cash to fix up the homes. The general metro area has home prices low enough where I am concerned people can get a mortgage, including taxes, for payments that would be matching my rental payments. So I am essentially banking on people’s inability to come up with credit/down payments for a home loan and also finding somewhat decent used homes to reduce my costs and get rents lower. I am confidant we will get that done.
There is a turnaround park about 2 miles away that seems to be setting and occupying homes.
If this screams red light to anyone, please comment.


#5

It sounds like your concerns are well reasoned. Have you done the test ad?

It would be good to talk with the operator who is doing the turn around to gauge their insights but it might be better to be under contract for that conversation.

I’m personally not a fan of weaker markets if you can avoid them. I think the average house price is a very good metric to protect park buyers and there is a purpose behind it. Not to say the deal won’t work but just so you go in with eyes wide open.