A little background, I attended a bootcamp, looked a lots of deals, and now starting to make offers.
I’m hoping for some thoughts on the deal below. Is there anything I’m missing in my valuation calculation? And more specifically, which one should I present in an offer? It seems like $210k would be really low for a smaller park but I may not have enough experience to know any better.
Thank you in advance for your thoughts!
Numbers:
-Asking price is $300k
-19 lots
-14 occupied (all tenant owned)
-5 empty lots with no homes
-City water and city sewer
-Lot rent is $250
-Has a storage unit (large enough to fit another 2 pads) which is currently empty but not permitted for a mobile home lot, owner seems to think it should not be a big deal to get it permitted from the city.
-Smaller midwest town with a metro population of 250k
-Walmart Supercenter is 20 miles away
-Local 2 bedroom apartments rent for ~$700
Notes:
-This would be managed out of state (a plane flight away).
-Upside would be fill in the empty lots and raise rents.
Possible valuations:
14 lots*$250 lot rent*70=$245k (quick calculation)
14 lots*$250 lot rent120.7*10=$294k (alternative calculation)
14 lots*$250 lot rent120.5*10=$210k (higher expense ratio for smaller parks)
And deferred maintenance or initial capital budget required?
Whats the financing look like, owner, local bank, cash?
Id lean towards the 210 offer without knowing anything else. 30 % expenses can get to be a little unrealistic as the deal size goes down but you have to start crunching the exact numbers make sure there is not something weird like high taxes or something but becomes a tricky game to play to pack in some overhead to pay someone for help across the gross revenue.
Doable and might be a good start depending on your circumstances, just keep the exit in mind especially on the smaller deals even if you aren’t selling tomorrow.
Thank you for your insight, I’ll definitely dig further into the questions but here are the responses I have so far:
I’m getting more info on the market rent, there are parks a little closer to the metro renting for $325.
Direct bill utilities to tenants.
I’m not sure on the shape of the TOH besides looking on google earth, is there a good way to check on this?
What type of deferred maintenance and initial capital budget should I be aware of? There doesn’t seem to be anything large except the storage unit that could be torn down and make room for more lots.
I was planning on putting down 25-30% and getting a local bank to finance the rest, though it seems like for this price, it seems like getting a small loan will take some phone calls, which I’ll be happy to make. I was going to bring up seller financing but was going to bring that up later in the process. Is there a good time to make this suggestion?
All sounds great. Some upside with market rents, upside with filling lots
Direct bill is appealing.
Just if you have seen pictures of the park or been there. In the theoretical example if you think you might end up losing any tenants upon take over (i.e. homes are rough ) . Or if they all appear to be cared for and orderly that is a good start. Google street view is good. Ive hired a company called WEGOLOOK to get pictures of the property . They might not like someone going out to get pics at the property without their consent but this was an instance on a small park where i wasn’t sure if it was a waste or not and paid a few bucks instead of spending a day checking it out.
So capital up front could be for tree trimming road repairs, addressing any deficiencies, deferred maintenance. If its more of a cared for property less of a concern.
It could be tricky to get that loan with the deal size put can be possible so like you said, hit the phones hard and then if you cant get financing, good chance others might so you can offer owner financing.
I always ask people on the front end are you looking to just get cashed out or would you consider owner financing WITH A DOWN PAYMENT. Meaning your not looking to give them 1k down but you are implying that you have some credibility. They may not but I always like to figure out the deal structure on the front. And on this , if they say know. I would tell them a bank loan is possible but sometimes parks are hard to finance especially with the low dollar amount. I think transparency is great because then they know there is some challenges ahead and not yanking their chain.
Here is something to consider regarding small parks;
There are certain costs that are more or less fixed, such as: taxes, on-site management, insurance, some utility base fees, landscaping, etc. On a small park it could take the profit from the first 10 to 14 homes just to cover these costs.
In my opinion things get much better after 15 homes or so. You would be wise to add homes immediately and to have funds ready to buy homes.
That additional capital needs to be accounted for in your COC calculation. Chances are you won’t get financing to buy those homes, which means your COC will take a hit. Thus, you’d want to pursue some form of seller financing to improve your COC position.
There are other creative things you could do to make this work, but in my opinion, larger parks is where the better opportunities exist.
Thank you both for all the thoughts! This definitely provided some food for thought in moving forward.
My thought on this park was to pilot or get my feet wet with a small park (less than $500k) before going bigger. That said, would you think that casting a bigger net and going up to a $750k (assuming the numbers were good) with more lots (closer to 30) be a much better use of time/money?
Precisely my point. When it comes to MHP’s, in general, the more units the better. The thing to do in each case is to do the math. The COC calculation is key. If you can get a small park with little or no down then the COC could still be very good, despite a lower number of units.
Having said that, if you want to make it big, then you have to think big!