First MHP analysis

Hi and thank you ahead of time for your responses.
I’ve been a long term SFH landlord, recently searching for mid/large apartment complexes/commercial income prodcuing props.  At a recent REIA, met a MHP owner that wants to sell.  This would be my first park so your feedback is greatly appreciated.
Details as I know thus far:

  • 100 unit park in Triangle area NC, just on outskirts of city.  Rapid population growth in this area.
  • Only one park owned trailer, used for management
  • $300/pad/month.  Hasnt raised rents since owner purchased in 2009.
  • 100% occupied with supposed waiting list
  • Asking around $2.3M, might be a little flexible
  • Owner selling only because their financial partner wants to liquidate for bigger project
  • will consider owner financing with 50% down
    Based on reading thru the discusssions, I obviously need to find out about who pays utilities and source of water/sewer, but I think the rule of thumb is 40% expenses worse case.
    Asking price is just shy of 10% CAP.  Due to strong area and potential for lot increases, would this be a decent first park to pursue?

Definitely worth pursuing.Our rough valuation is100x300x60=$1.8mm would yield a 12% cap.  You’d be paying a bit more, but not unreasonably so - especially if upside in rents and/or cost control.If you don’t pursue it, we’d be interested in buying it, and we do pay referral fees.To your continued success,-jl-

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Congrats on an interesting find! I live in the Triangle (CH) and would agree that it looks like an opportunity. You should be able to do better than 50% LTV if everything is as advertised. As a starter, you might try Self-Help in Durham; they do a lot of affordable housing support and lending.

Some further details:
Turns out park has city sewer with master meter but well water (3 wells). Park pays these and will be expensive to individual meter?
Seller states their past 4 year NOI average is around $215k, but they did not include property management expenses in this calculation since its owner managed.  Adjusted NOI is $184k with 10% PM expenses ($215-36k = $184k) comes out to about 50% expense ratio, which seems a ltittle high based on what Im seeing here (should be around 40% I think)
At current sales price, purchase CAP rate is around 8.5% with these figures so doesnt look as strong a deal as originally projected based off actuals. 
Would this be a reasonable acqusition target since “standard” expense ratios imply potential value in driving down future expenses?
Ive always learned to buy at a discount and build value.  In this case is a stabilized 8.5% CAP a good value for a MHP or should we walk if seller wont come down in price?  Id obviously want to buy at 10CAP and build value to 12-14 CAP.
Thanks again for your time to comment.

Being on city sewer is more important than being on city water.  But check all the water records with the local Department of Environmental Quality to insure there is no pollution in the wells.Many sellers misrepresent their books, so do your due diligence carefully and think about what is not shown at all on the books - like Management.  Also, your taxes will almost certainly go up with your purchase price probably being greater than the currently assessed value.Come to boot camp, learn it all.To your continued success,-jl-

This deal suffers from four problems:1) there is no apparent upside. The park is full and the rents high. What do you do to add value?2) 50% leverage does not work. To hit 20% returns you need a 5 point spread between CAP rate and interest rate, and then 80% LTV.3) Well water. That just turned off 50%+ of all buyers and bankers.4) NC is not a state that turns people on, and the seller is WAY overplaying his hand here.This deal sounds real exciting for the seller. But we believe in win/win deals in which the seller AND buyer succeed, not just one party. The seller has GOT to get more realistic, or this park will still be on the market in 2094.

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Mr. Lilly, I know you are a heavy investor in NC, how do the rent controls on late fees affect what you do there.  It has been a pretty big turnoff for me in an otherwise great area (especially Raleigh).  On a park like what’s described above, the maximum late fee NC allows is $15.  Do you use any kind of early rent payment incentive to disguise the late fee?  Something like $350 if paid after the 5th but $300 if paid before.  Generally, I only see this type of activity with the Moms and Pops in NC.  I’ve always assumed it was illegal, but I wanted to get your opinion on it.

Just a follow up for this park above: I recently touched base with seller from above, the park was sold at $4.15M, not much of a discount.

Frank, would you mind expanding on your comment about NC not being a state that MHP investors are in high demand? I’m curious the opinion, as Raleigh ( and to some degree now Charlotte) are booming with regards to job& pop growth and" top 10 best place to live" designations for over 5 years running…
Are there specific state regulations/barriers that are present that a newbie may not be aware?

As always thank your I for all the feedback.

Cswholdings, I am just curious.Your follow-up indicated that this Mobile Home Park was sold at:$4.15 MillionHowever, your initial post indicated that the MHP Owners were asking:$2.3 MillionWhy was the sales price so much higher than the initial asking amount?Since it is in the Triangle Area of NC was this MHP sold for a higher and better use?Thanks So Very Much!

Big typo, sale price was $2.15M. Thanks for clarifying.

  1. 50% leverage does not work. To hit 20% returns you need a 5 point spread between CAP rate and interest rate, and then 80% LTV. Could I trouble someone for a simple worked out example that proves this? I tried to work this out in Excel, but didn’t arrive at 20% (arrived at 30%). Thanks in advance. 

There are some states that are “sexy” with buyers and lenders, and some that are not. NC is not a member of the “sexy” group at this time. The “sexy” park areas are such states as CA, FL, NY, WY, CO, ND, MN, WI, TX, WA, OR, UT, and a few more. Why is NC not on there? Don’t know. How do you find out which states are “sexy”? Talk to the brokers, lenders, and watch the speed of activity on parks in those states on and Loopnet. You’ll quickly realize that certain states get immediate attention by buyers, brokers and banks, and others languish. Which states get the least respect? Until recently Michigan, however, it is now gaining attention again. The new weak states on demand are Louisiana, Mississippi, Alabama and Georgia. If you take two identical parks, one in Texas and the other in Mississippi, the Texas park will sell for a lower cap rate and ten times faster.Does this mean that parks in LA, MS, AL, and GA cannot be sold? No. But you will not get the same levels of interest and speed of offers in those areas normally, not as high a price. Since we are big believers in exit strategy, when you buy in the non-sexy states, you have to be prepared to hold it longer and get a higher cap rate up front to compensate.

Frank, what are your thoughts on parks in PA?