I am a real estate investor, mostly single family and units, I have never owned MHP. I came across this one for sale -This is a mobile home park located in the desert two miles away from the Marine Corp and the Tortoise Rock Casino. It has 26 spaces and the size of the land is 5 acres. The land itself has an amazing market value because it lies within a service commercial development district code.To activate the park’s permit, the electricity system must be repaired and all the utility accounts must be turned on, too. There are seven fixer upper mobile homes parked in the park. They can be fixed and leased to tenants that do not have a mobile home. The park also needs general repairs, cosmetics,landscaping, etc…The rent market value of a mobile home space is between $350 and $400 with utilities. I have spoken to the owner, He will provide some seller financing so i can use my cash to make repairs and get license back. How do I determine the value of this park. How hard is it to get people to either come to a park or to buy a unit I have purchased and have already installed. I am a newbie so any help would be appreciated. Thank you
The value of the park is effectively $0. After the 7 lots w/homes are rented, it might be worth $150k. So, I might value that deal for $75k minus any capital costs to achieve that outcome (if I were feeling extra generous that day). Which means, we might still be back at $0. After the 7 homes are rented, it is too capital intensive to place any present value on the remaining 19 lots. The amount of capital you would need to make this deal bankable would be better used in a much more lucrative deal that presently cash flows. That sounds an awful lot like you are talking about 29palms though. I may have a somewhat skewed view since I spent 8 misery packed years in and out of that place, but I wouldn’t put $1 of my money into that area. My suggestion would be to get yourself to the bootcamp and learn the business. Once you do that, you’ll learn how to pick an area to invest in and how to evaluate & structure worthwhile value add opportunities that aren’t as capital intensive as this one would be.
Thanks CharlesD for you commments
No problem. The first park park I ever looked at was a lot like this one. It had 21 lots w/8 vacant homes. The well had failed and the guy who owned it was selling the “park” for $30,000. I almost pulled the trigger on that, but I decided to go to the boot camp before I made a decision. Glad I did. The guy sold it a year and a half ago and the “park” is still exactly like it was the day I went and looked at it in 2013.
I went to an auction once in Oklahoma. There was a park that was owned by a professional bowler who had died, and it was an absolute auction. The minimum opening bid was $10,000. The park had a neat location on top of a mountain top, but the market was small and the economy not diversified well at all. And it only had about 30% occupancy. I got excited that maybe nobody would show up at the auction,and I could buy it for $10,000. So the auction began and the park sold for about $150,000 – a terrible price and about a 5% cap rate. The buyer banked on the goal of filling lots. I drove by the same park a decade later … and it was still at 30% occupancy. A terrible deal that only gets worse with time, Don’t be attracted to deals just because they’re cheap - often there’s a good reason for that.
Here’s a few more notes concerning risk and potential liability : 1) Older rental homes are the #1 cause of $1,000,000 plus losses to park owners - you can own them and make money on them, but deferred maintenance issues can cause devastating losses in addition to being a perpetual drain on cash flow;2) California probably has the most landlord hostile laws in the country / and most favorable ones to tenants; and3) California is probably the worst state in the US to be a Defendant in a lawsuitThis may be a great deal, but make sure that each home is in habitable condition, and if not, what would it cost to get it there. Kurt KelleyKurt@mobileagency.com