First MHP Deal Analysis

I really need some help in evaluating my first mobile home
park I have under contract. 

-Lots 35

-Occupied 28

-Lot Rent $155

-City Water/City Sewer

-All tenant owned homes

pay their own billsPurchase Price $360,000

After spending over one year learning about mobile home
parks I was really excited to get this one under contract. After completing due diligence the thing that
scares me most about it is the market that it is in.

-5,000 people- stable but not growing at a rapid rate

-Not considered to be in a metro area but is about 30 miles
away from a city of 70,000 and 80 miles  away from a metro area of 1 million

-Median home price of $ 80,000

-Vacancy rate of 15%

-Household income-$38,000

-2 bedroom apartment rent $500

-Rental rate of town 35%

-Test ad using craigslist only resulted in 9 replies

I know there are some issues with the market but I don’t want
to pass up on an opportunity to invest in a MHP because I know it is not easy
to find a decent deal. My fear is I pass on this one and cannot find another deal
for the foreseeable future. Am I trying to hard to find a perfect deal when
this could be a good one? Thanks for your advice.

It is also the only MHP in town

Apartment rents are awfully low. I wouldn’t get into a bad deal out of fear that you can’t find a better one. The price is right around a ten cap however, assuming 155x28x12x.7x10=$364,560. Who pays water/sewer?

The market would probably be a turn off enough for me to keep looking.

The numbers do not look compelling.  The gross income is $52,000.  The best you can expect is 40% expense ratio for a NOI of $31k which is an 8.6 cap rate.  The expenses are likely to be substantially higher in this case because the rents are low and your maintenance expenses will not be much lower than a higher rent park.If you can see that the park can get substantially higher rent, it is possible that this may be a deal.  However, with a small town, low growth, low apartment and housing costs it is doubtful that the market can support much higher rents.If you can see the park being attractive at $200 per month rents, then it might be a go, but 9 replies at such a low current rent is not encouraging.Howard

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Assuming in that market you can not raise the rents significantly and you will not have more than 28 lots occupied in the future your only option is to lower your purchase price accordingly. You can still make money at $360000 it simply boils down to how much more you can make by getting the price lower. If it’s close to where you live and easily self managed then it’s time to negotiate. However if you are not in a position to do the operation 100% yourself the price would be a deal breaker for me. Nothing ventured nothing gained.  

What Cap rate are you buying at?
What are the lot rents at other parks in the area and other surrounding towns?
As a new investor I can advise you in my limited capacity NOT to do a bad deal just to do a deal
If a,2 bdrm apartment is $500, what would you rent a 2 bdrm trailer for?
9 replies is not alot. I speak from experience of running those test ads.
The deals are out there but you have to look past the obvious websites.

Thank you all for the advice.

I’d stay away at anything less than a 15%-cap on land-only income for a deal like this.  Heck, maybe a 20%-cap makes more sense.  I don’t like your low response rate to your CL ads, I don’t like the high vacancy, and I don’t like the low average home price.I suspect your future will look like this if you purchase this park:* Nearly every month, someone will move-out in the middle of the night, leaving the home trashed.* You’ll be caught in a never-ending cycle of coming out-of-pocket to rehab homes.  You’ll not count the countless hours you spend coordinating rehab crews, advertising again on CL and in the paper, showing homes, running background checks, getting leases signed, etc., etc. etc.* Your applicant pool will be really rough - even by mobile home park standards.  Your homes will sit vacant for 3 months while you screen for tenants looking for one that has both $1,000 cash, and no felonies in the past 10 years.* When you factor in the value of your time, your 15% cap rate quickly becomes a 10% cap, perhaps lower.Last year we purchased an awesome little park outside Kansas City at a 10% cap rate.  City water/sewer.  All residents own their own homes (or got real mortgages from the previous owner).  Our test ads pulled 35 responses/week, we are near a great public school, average home price is $120k, household income averages $48k, rental percentage is 32%, 2BR apartments go for nearly $700/month.  I spend about 10 minutes/week on that park.  Ditto (or maybe 3 x ditto) for my partner, Brad.Better deals are out there at a 10% cap rate.  Go get one.-jl-

In this analysis, could you explain what the 10 refers to… I understand all the others.

That’s the capitalization rate he likes for his investments. Adjust for what you need.

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More specifically, 10=100%/CAPRATE