Currently own and operate one mobile home park in Texas and evaluating the potential purchase of a 6 pad park - more details below and would love everyone’s input.
-Texas tertiary market - Population 6,000
-6 pads
-3 POHs all occupied paying $450, $450, $500
-All POH are fairly well maintained but were manufactured in the late 70s and early 80s
-Park used to have all 6 lots full with homes
-Currently testing power and water to the 3 vacant lots to determine feasibility to restore utilities to these 3 lots
-City utilities
-Tenants pay for their utilities
-Landlord covers trash service at $100 per month
-Every 3-4 years gravel is installed for the road
-Sits on .75 acres
-No insurance currently on park
-Taxes run about $300 per year
Revenue: $1,400 per month
Expenses
Taxes: $25 per month
Trash Pick Up: $100 per month
Opex Reserve: $140 per month (10% of Rev)
Total Expenses: $265
Net: $1,135 per month
Per Year: $13,620/year
Asking Price: $150,000
Using back of the napkin - since these are POHs I’m not calculating lot rent but lot rent plus the home rent combined
3 lots occupied x average rent $466 x 70 = $98,000
I can see the value -add component in adding 3 homes and also raising rents slowly up to market - which is currently around $800 per month
My offer price that I’ve come up with is a maximum $125,000 based on the low of $98,000 and high of their asking price at $150,000.
Based on the information above, are there additional questions or due diligence points you would focus on? Thoughts on my evaluation or additional factors to consider?
$50K per occupied paying pad?! that price tag falls into premium territory. Is the park in an ultra premium/excellent metro? Paved streets with new homes? Are lot rents $1000/mo?
Don’t overpay. I would value a tiny (2 star) park somewhere between 10-20K per occupied paying pad. 3 paying homes … 60K tops. There’s not a ton of upside here. Future potential takes money, time, risk, headache…so don’t pay for it.
Note: price per occupied paying pad is not the whole story, but a quick way to evaluate.
Thank you for your feedback! Park is not in an ultra premium metro. All 3 homes are parked owned so they are paying gross rents of $450, $450, and $500 so we don’t have a split between the lot rent and house rent.
At $60,000 versus $100,000 I can see a much higher return but still seems that at $100,000 the return is decent. I would also consider paying $20,000/MH to move onto the property. When including transport and tie down, let’s approximate $70,000 capex on top of $100,000 for the initial investment to buy the park. All-in cost of $170,000 and the 3 newer homes would fetch $800 per month (lot/home combined).
Total Investment: $170,000
Total Revenue: $2,400 (3 newer homes) plus $1,400 existing - $3,800 monthly revenue…after expenses $3,300 per month or $39,600/year on $170,000 is 23% cash on cash which seems like a wonderful return.
What am I missing?
I am planning for a long term hold - at least 20 years.
It’s way too small for most park investors. Minimal options for resale. I’ll admit, I’m buying a 7 unit park (all TOHs, great market, city utilities, $500+/mo lot rents) at the moment but that’s ONLY because I have 75+ units in the area already and it’s coming with a larger park. I know I will need to package it in order to sell in the future.
If you want to buy it and treat it like a horizontal apartment building thats fine, just know you’re losing out on the benefits of MHP investing: long term “sticky” tenants (low turnover) and no home maintenance.
Thank you for your advice - I do see how there are some MHP investing benefits that id be missing out on. Does make sense to convert from POH to TOH and then just collect lot rents.
The park is on City utilities which I think is a big plus.
My goal would be to buy this smaller park with lines of credit and pay off in 4 years then use free cash flow for a larger down payment on a larger park. Other option would be to skip this step and use the current lines of credit as a down payment on a larger park with seller financing. Main risk I see is you’re essentially double leveraged (down payment and seller financing combined).
From a risk-adjusted basis would you still pursue a larger park purchase with the above logic or stick with the smaller park and work out the operational kinks? This would be my 2nd mobile home park purchase. First park is similar size and market.
Would be a bit of a shame to tie your lines of credit up into a four year commitment and then find something down the road that fits better- little bigger maybe with better actuals. You could also just sit down with the owner over a cup of coffee and have a ‘comin to Jesus’ meeting and share your valuations of the park. 60k plus a bit for the vacant lots.
This park is definatly overpriced as others have mentioned.
As far as risk adverse is concerned my opinion is if you want to be a investor “risk adverse” is going to work against you.
I would go bigger or go home, wait for something on a larger scale rather than tie up your available credit in a small operation.