Price $800,000 (currently under contract for this amount).
73 MHP lots (no RV lots) located on 15 acres.
70% Occupied.
All tenant owned homes.
Lot Rent $250.
Utilities are all city (water/sewer/trash). Park pays and bills back for these.
Electric and gas are direct from utility to tenant.
The city has a population of 30,000.
City unemployment rate is 6.5%.
City median home price is $60,000.
2 BR apartment rent is $700.
The metro has a population of 500,000.
Metro unemployment rate is 8.0%.
Metro median home price is $80,000.
The park earned $75,000 in its most recent year.
Walmart is less than ½ mile away and the park is visually appealing.
I’m most concerned about the low local home prices. I would think that this would cause serious competition for mobile homes. However, I interviewed a few nearby park managers and a local banker who makes MHP loans. All said that the market was stable and healthy as far as the park business goes. I even looked at Google earth historical images and did a home count of many of the local parks. They are mostly stable with a few adding some homes in recent years.
Thoughts?
The home prices would be a concern, but they aren’t low enough that it would necessarily scare us off of the deal (they are close though). What is the % of vacant housing in the area? How are the neighborhoods that are closest to the park?
Thanks Charles. I appreciate your comments.
The vacant housing in the city is 2%-2.5%. The stick-built neighborhoods nearest the park look to have an average home price of around 85K with the range being 60K-120K. There is, however, a mobile home subdivision very close to the park with home values of 40K-50K. The subdivision is full and only one home is for sale.
Next time you are in town, I would drive through that neighborhood to get a feel for it. I always like to see that the immediate area around the park seems to be desirable. What I hate to see are an abnormal amount of for sale signs and indications that it is not such a great place to live. I think you’ll be fine on this one though. With a 2% vacancy rate, it would seem that the limited supply of housing should push the price of housing up over time possibly. Have the prices always been historically low? Or is this a cyclical kind of market?
As for your price, I think you are a little high, but not by much. There is likely very little upside in rents considering your market, but it would seem that you probably have some decent upside in normalizing the expenses. 50% expense ratio is high considering they bill back. Are there any line items that appear out of whack on this? (management, water loss, etc) Sounds like a deal you can make a decent return with to me.
Each of the homes is individually metered and read monthly. However, the park water bill is $1000 a month more than the individual meters would indicate. During my DD with a plumber, we found a pretty significant leak. I’m hoping that accounts for a good chuck of the difference. Other than that, every line item seems a bit high but not extraordinary.
Sorry, I missed your first question.
This park is in South Texas. I believe the home prices have always been low.
I know very little about Texas but you are likely right. I don’t see any cause to worry based on what you’ve put here. I would definitely continue seeking multiple opinions on this up until decision time as there are quite a few people here who have great ideas and insight. There are also tons of people here who own parks in TX and can give you specific details on the market you are investing in. I’ve done it multiple times and it’s always been a great source for a reality check.
51 occupied lots x $250 lot rent x 12 x .7 x 10 = $1,071,000. So the price looks attractive (note that with 73 lots and $800,000 park value, that’s basically construction cost).
South Texas is not one of our favorite markets for the exact reason you’ve found: low home prices. The test ad will tell you if there is enough demand to make this work. You need to become a fast expert in that community and know better than anyone what makes it tick, as you are investing not only in a park but a market.
I would also get with Pierce Redmond at (585) 423-0230 to see if he has contacts to get a loan in that market. You may end up having to go door to door with local banks.
You’re scaring me with the “mobile home subdivision” nearby concept. Does this city allow you to put a mobile home on a residential lot? Is there land/home lots available in this market? Neither are going to make this market very good for parks.
The city doesn’t allow manufactured homes on residential lots anymore (other than parks). The nearby MH subdivision has about 50 homes on lots. It’s been there for over 20 years. I can’t see any other neighborhoods like it.
Call some mobile home dealers and ask them, if you bought a home from them, do they know of any 1 acre lots or similar that you could buy. See what’s out there as far as land/home lots.
A big problem with South Texas is that land is vast and incredibly cheap, and you don’t want to be trying to get $250 per month when the tenant can buy an acre and pay $180 per month.
Better safe than sorry.