Thoughts on this MHP?


#1

Looking to purchase my first MHP and this is one of the deals I’m looking at.

16 lot park with 9 lots occupied and 1 POH. Park is a 3 hour drive from my house in a town with 13000 people and population of 580000 within a 25 mile radius of the park, and median income of $44k. City water and sewer. Tenant pays electric, park pays for other utilities, lot rent is $175. Owner wants $173k.
Seems like he’s fed up with the park from a bad run of managers

Cons: it’s right next to a refinery but owner says he can’t smell anything. Also, a few of the existing tenants are inconsistent in paying.

I’m thinking of offering $100k with 20% down and have the owner finance the rest.

Is the refinery a deal breaker?
What do you think of the owners asking vs my offer?
Is this park too small to be trying to manage from 3 hours away?

My concerns are the inconsistent paying tenants,the vacant lots will be cumbersome to fill from 3 hours away, and lastly the most I could turn this park into is a $200k park if I raise rents and fill all the lots, so not a ton of upside.

I’d be curious to hear some thoughts on this deal and my concerns.

Thanks


#2

What are the rents? What are the market rents. If the tenants moved out of the homes how many would not be worth fixing up?


#3

Randy,

Lot rent is 175. I’m not sure in the market rents and conditions of the tenant homes. I ended up not pursuing this one due to the size of the park vs it’s proximity to where I live. I don’t think a park this small can sustain a managers pay. Maybe that’s incorrect?


#4

I see now you had the lot rent in the original post. This park, like most, has two main possibilities to increase in value; 1, raising rents; 2, filling lots. That is why it is important to know the market rents. That is key to calculating the added value to the resale value of the park from both 1 and 2.

If we say the rents could go to $225/month and expenses running at, say, 50% of income (it is such a small park, so I guess the expense ratio would be even higher then the usual 45% for well managed apartment buildings) then with all lots filled and all lots at market rents the park would have a NOI of,

16 lots X $225 rent = $3600 monthly income X 12 months = $43,200 annual income X 50% = $21,600 NOI.

I guess you you would have to sell at something like a 11 - 12% cap rate, since it is such a small park. That gives us $21,600 / .12 = $180,000 market value of the park at 100% of its potential.

That is a whooping $7k above what the owner is asking now. Given my assumptions, the whole deal is kind of a joke.

If you are looking at such small deals I guess you are just starting out. I would suggest you don’t limit yourself to Parks but also consider flipper homes and failed small apartment buildings. You can also build up your capital turning them around and they can usually be found easier then just limiting yourself to Park deals.


#5

Randy,

I agree that the deal stinks at asking price but I was thinking of offering 100k at most. TBH with how a large portion of the lots needing to be filled and the minimal upside at max potential it’s just not something I’m interested in. If it was local to me and I could manage it myself I’d be more interested in it for the cash flow.

I’m looking at another deal now that’s 350k asking price 35 lots and 90% occupied. All city utilities and billed back to tenants, I’m assuming lot rent of $200.

Unfortunately I don’t think the owner is interest in financing, and I only have 10% to put down. Even with a decent job I’m not sure the banks would loan on something this size. I’m still going ask around though.

Thanks for your reply.


#6

It seems from your posts that what you should be concentrating on is capital gains not monthly income. That can be a little tough if you have a good job because you most likely don’t have the time to do a turnaround property – which is where you find capital gains.

10% down is just not enough for a healthy investment unless you are doing a quick in, quick out flip. An owner would be foolish to turn over his property to someone so thinly capitalized.

So what to do? Hummm…

One thing I can pass along is that I have been buying MHs in Central IL and NE. I have been finding deals that I can move into my parks, clean up and sell for twice or so of what I paid the original owner. It costs me to move the homes, and clean them up. But if you were buying in parks and buying smartly and cleaning them up yourself you would not have the expenses I have and you could come close to doubling your money on each deal. One of the reasons of why I can charge so much more for the homes is that I pay cash and sell with owner (that’s me) financing. Because I own the parks and get both lot rent and loan payment, I recoup my money in a little over two years. You will not have that, but you could age the note for a year and then sell it at a discount but still walk away with a pretty good capital gain in cash. If your local market is anything like my markets, which are nothing special, I would guess you could turn your $35k into $100k in 4 or 5 years of horse trading and a little week end elbow grease now and then. At that point you could realistically look at moving into buying some properties.