Hello all. I have been looking at MHP’s for a couple of years trying to find the right deal. I am currently looking at a park with 33 lots, 30 rented at $200/mo. No POH’s. City water, septic for sewer. Financials look like this:
Gross: $69120
Expenses:
$21446.11 (includes taxes, ins, maintenance, utilities, and a 10% of gross Management fee)
Asking price:
$587K
Seller says premium is due to some of the property being waterfront with a pier.
Broker says seller is motivated and very open to seller financing.
I’m thinking $400K would be a more realistic price. Any thoughts on this one would be much appreciated. I have no experience and was looking for some what to look out for type things for a park with no POH’s. Thanks in advance.
Let’s start with the numbers. $200 x 30 x 12 x .6 x 10 = $432,000. You are correct – a price around $400,000 would be around a 10% cap rate, and that’s the most you would want to pay. On the downside, the park is on septic. You’ll have to become the world’s foremost expert on septic in that area to have the odds in your favor. The seller carry is a big plus, as long as the term is at least 5 (10 would be even better) years and the interest rate low. I would want to know what the upside is in raising rents – is there any room to do that?
As for the “waterfront is more valuable” argument – if that was true, then a developer would have already bought it. Land speculation is for suckers. Why not let him keep the waterfront and the pier? It’s of no use to a mobile home park.
I’m not sure if there is room to raise rents yet. I know that the park currently pays trash and water. Not sure if that is common for lot rentals. Also, I’m not sure how the seller financing would work. I’m guessing a 10 year note would have to include a balloon payment at the end? Otherwise, the mortgage payment would pretty much eat the whole monthly income. Any particulars on what a good seller financing deal looks like would be much appreciated. Thanks.