1st mobile home park purchase *need advice*

I posted with my interest in this park several months back. since then i have been able to negotiate the park to a purchase price of 80,000. My wife and I are a young couple and have been wanting to purchase a mobile home park for a couple years now.There are a total of 17 lots, all city water and sewer. They are all tenant owned. varying from older to newer homes. 2 renters are renting a double lot and are paying $175 ($100 for the lot there trailer is on and 75 extra just for the extra land), one important note I should make is that it does not appear to meet the health department spacing requirements if we were to move a trailer in this lot (though i have not measured). 2 more are paying $75 for lot rent. 11 are paying $100 for lot rent. This adds up to be $1600 in monthly income. The owner never really enforced rules or regs and has never raised lot rent. The park does need some clean up work but its not terrible. The park is not located in a metropolitan area. Most renters have been there for years. Another park I called on close buy was renting for $125 lot rent and another about 45 mins away in a fast growing metro area was renting for $240.

Owner lives away in Florida and is wanting to sell. Originally she was asking 160,000

19200 yearly income

  • 1100 taxes

  • 1000 yearly exp (apprx)

  • 703 ins

= 16397 income after expenses apprx.

I realize we have to start somewhere with this, would you guys recommend pursuing forward ?

Thanks in advance for your concerns and input.


You’ve done a good job of negotiating this, but the numbers are not accurate on the net income. If the revenue is $1,600 per month, the expenses will be at least 40% to 50% based on who pays water and sewer (normally the expenses are 30% to 40%, but this is a very small park and the fixed costs and low lot rents are going to increase that expense ratio). So the net income on this park is between $11,520 and $9,600. At an $80,000 purchase price, that’s a cap rate of 12% to 14%. But if you have to put in $20,000 of renovations to the park, then the cap rate is around 10% to 12%.

In diligence, you’ll have to become an expert at the water, sewer, gas and electric systems, as well as the market and everything else (permits, etc.).

I would have two big questions. One would be what the financing plan on this park is. Will the seller carry? It’s very hard to get a loan on a park this small, and the third-party reports are going to increase the amount you have in the park by around 5% to 10%. The other question is what the upside is. Can you raise the rents? Have you done a test ad to test the strength of the market?

A price of $160,000 was absurd. $80,000 may work, but you still have a lot of work to go to decide whether or not the park is worth buying.

Frank, I am no expert on real estate but I am trying to figure the MHP market out the best way I know to. I purchased the 10/20 Investment book and am very eager to learn as much and go as big as i can with this, and do plan on attending the Boot Camp in the near future.

You mentioned the expense ratio on this park and the net income decreasing. Would you foresee that with this park considering each lot has its own water meter and the tenant paying their own including sewer?

As far as the electric goes, im sure there will be future issues when it comes to filling new lots with tenants and undergoing electrical service connection inspections. But at the moment according to our local power company there should be no issues since they are already in service. I was explained that later after a tenant has left and new arrives is when changes will have to be made to meet code requirements if not up to par.

I have also met with the health department and walked the park over, there did not not seem to be any issues as far as permits and spacing. Would there be any thing else?

We have not really discussed seller financing mostly because the park wasn’t even on the market. Ive just been a bug in her ear for the last year. We have met with the bank and were approved for a commercial loan at 130,000 since then i have become more knowledgeable and negotiated to 80,000. The loan would be at 6% interest with 10% down and maybe the possibility of 5% down. We have not spoke with the bank at a purchase price of 80,000 so im not sure now, those numbers could change.

I have not done a test add. I would like to think that I could raise rents some, what would your thoughts be on that. My competitors would be around $125 for lot rent.

Could you shed some light on how to calculate the cap rate on a MHP? I have searched the web some but would be nice to know your methods.

If there is something im missing please do not hesitate.

Thanks, Paul

If the other parks in the area charge $125 per month with the tenant paying water & sewer, then you can probably raise your rent to that level without any negative push-back. Since it costs the tenant around $5,000 to move their home, they really don’t have a choice anyway.

I would definitely run a test ad immediately, in the largest metro newspaper (assuming there is one) and the local paper if there is no metro nearby. The ad should read THE NAME OF THE TOWN THE PARK IS LOCATED IN IN ALL CAPS. 2 & 3 bedroom mobile homes for sale or rent from $495 per month – includes lot rent. (xxx) xxx-xxxx.

If the ad does not pull at least 20 calls or so in a 10 day run, then there could be definite problems with demand in this area. Even though you have no park-owned homes, you will have some in the future as people will occasionally run off and abandon their home, or die, and you’ll have to get the homes re-occupied.

If you have found a bank that will do a loan with only 5% to 10% down, then you are doing a fantastic job of finding a loan. Banks typically require 20% to 30%, so that loan is extremely attractive by comparison.

Why don’t you run the test ad immediately, and report back how many calls you get. That will help determine the issue regarding if the market is too small.

Sorry, forgot to add the cap rate formula.

Think of the cap rate as a fraction. You put the net income on the top part of the fraction, and the total cost of the park – including capital improvements – on the bottom. For example, if a park makes $50,000 per year in net income, and costs $450,000 but also needs $50,000 of capital improvements on day one, then the fraction would be 50,000/500,000 which is a cap rate of 10%.

Understanding and obtaining cap rates in my line of work are essential. We will use cap rates from sales of other similar mobile home parks as a way to value subject properties. Net Income / Cap Rate = Value.

The rates are generally tied to the risk of the property. Nicer parks with stabilized occupancies and expenses will have lower rates than those parks with high vacancies, poor management, and higher expenses.

Okay, I ran a test add and received about 8 calls or so in around 10 days, although I am still receiving calls on the add.

I am curious as to why the ads should be in a newspaper instead of CraigsList. It seem CL has really taken over the classified ads market around the country.


As a quick, back of an envelop calculation I like to also calculate Gross Rent Multiplier. Yes, it is not as sophisticated as cap rate, and I always calculate the cap rate forward and backwards, upside down and right side up; but there is a limit to the accuracy of cap rates due to the fact that there is usually a fair amount of unknowns and BS in the numbers and there are issues where people differ, like how much to figure for reserves.

On the plus side for GRM, is it is fast; it can be calculated without much investigation; it is not reliant on accurate expense figures (this is where owners lie all the time) and it gives a quick reality check. Why a reality check? Because if you put a dollar sign in front of it, it tell you how much you are paying for each dollar of rent you will have the right to attempt collect.

Example: 43 units at $200 per month rent, sales price $1,290,000.

43 x $200 x 12 = $103,200 GR. 1,290,000/103,200 = 12.5 GRM.

Now put in that dollar sign and you see you are paying $12.50 for every rent dollar.

It does not tell the whole story, but it can quickly show you if you are in the ballpark. And, as I said, there is a certain, cut-through-all-the-BS, reality check, that I like, to see the deal expressed as how much the seller is asking for each rent dollar.