Valuing Small 23 Space Park (First Purchase)

[NateW]

Hi all, I really appreciate all the knowledgeable folks on this forum who contribute their time. Thanks in advance for anyone who doesn’t mind to help an aspiring MHP investor out with an evaluation.

I am looking at purchasing my first park. I have looked at probably 100+ deals between MHPStore and Loopnet, and consumed all the free material out there available, and feel pretty comfortable with the process. I want to start with a smaller park within driving distance to me in Washington DC for my first purchase.

I’ve come across a 23 pad park in Pennsylvania. Asking price is $270k (originally $370k) from a mom n pop seller who own several local businesses and are getting ready to retire. Seller provided the following info:
-23 Lots
-18 Lots Currently Occupied (other 5 are completely vacant)
-No POH
-Current Rent: $165/month, just raised a year ago from much lower (have not comped the other parks in the area yet)
-City Water/Sewer direct billed to tenants (but park is responsible for the infrastructure–all lines were replaced in last 20 years)
-No manager currently onsite (local operation where he collects rents himself)

Reported the following on 2015’s tax return for the park (actual income/expenses appear to be baked in with his other businesses and would probably be a bear to sort out):
-Rents Received: $28,280
-Advertising: $315
-Bank Charges: $170
-Cleaning: $60
-Insurance: $541
-Office Supplies:$672
-Pension and Profit Sharing: $12,000 (!)
-Repairs:$4,099
-Property Tax:$5,086
-Garbage: $2508
-Electric: $253
TOTAL OUTFLOW: $25,704
NOI: $2,576

Landscaping/Snow Removal is part of the Repairs. I am comfortable adding the Pension/Profit Share back to the NOI for a total about about $15k, but that still leaves a very low valuation even at a 9 cap.

I’ve built pretty good rapport with the seller and told him I could probably offer around $220k in our last conversation based on Frank and Dave’s standard formula for a park with direct billed city utilities (18 x 165 x 12 x .7 at an 11 cap = $227k).

Demographics are solid, but not a home run:
-MSA Population 65,000 and growing
-Zip Code Median Income: $42k
-Zip Code Avg House Price: $100k
-Zip Code 2 Bedroom Rent :$630, 3 Bedroom Rent: $840
-Walmart in town

Wow this post has gotten very long. Thanks to anyone who has stuck through it all. I really appreciate your helpful words of wisdom.

[Deleted_User_ME]

Next step to figure out is market rents. 165 seems pretty low based on the mkt metrics you provided but comping the competition will validate/invalidate this. If the lot rents for the mkt are 250 it makes a substantial difference than if they are 175 so really figure that out to get a whole picture on the deal.

Also check the vacancy of other parks because that may give you an idea if you can get the balance off the lots filled.

I didn’t see if you mentioned if they were offering financing or not. It would be nice if you can get terms as it can be tricky to find a bank to do this but with enough effort, you might find a local one.

Also on the smaller parks ( w/ a vacancy factor) , sometimes running a 30% expense ration is a little unrealistic as there is not that much additional room to spread overhead. the 30/40 percent expenses work a little better as you get bigger in size so just keep that in mind but you have actual expenses in hand and can figure out how you will be able to run it.

If you do run with it, i would still be sure to pickup the MHU due diligence manual while you are buying it as thats a road map on how to watch out for land mines.

Good luck !

[NateW]

Hey thanks for the reply Marvel!

I agree that $165 does sound low for market metrics, and that is one thing that I will certainly verify if he comes back and tentatively accepts my offer. Not going to waste a lot of time on it for the time being until we have a tentative price.

Will do for the vacancy for the other parks. From a cursory look, the other parks in the same town are all small parks as well (35 spaces or less) with some slightly larger ones 30-45 minutes away in slightly bigger towns.

He is open to terms, but wants a substantial down payment. I will definitely be looking for bank financing here. He also mentioned that he also has a higher offer than what I gave him but the person wants terms with it, so he would prefer to avoid that if possible. I don’t have a lot of leverage there.

Already have the due diligence manual and have read it inside and out and will definitely be following it for this one.

Appreciate all your help. Thanks a lot!