I am close to sign a contract for a mobile home park with 6 lots established on a three parcel land in North Carolina. . Each lot has city provided water/electricity/sewer/garbage billed directly to the tenant. Three of the six lots is rented to tenants who bring their own mobile home and the rest of the lots are empty ( i.e. no mobile homes are owned by the owner).
Current total income per month : $600 ($200 rent per lot )
Asking price : $35K.
If i fill remaining 3 lots,total income per month will be around $1200.
I would like to get guidance on
How to verify the land (0.3 acres ) is zoned for Mobile home park ?
Referral for a closing attorney or escrow company licensed in North Carolina
Referral for a property manager in Raleigh area
The deal seem too good to believe. Any gotcha i should be aware of ?
This is really a very small park so remember, when you go to sell, there may not be many people who buy a park this size. You lose economies of scale when you get this small so you may be running a very high expense ration say like 60% or more.
You would need to contact the city and get decimation that the land is approved as a park , how many spaces, setbacks, if it is legal conforming/non conforming etc.
You should find a larger national title company to close the transaction.
A deal like this might not do well with property mgmt. I think you would need to manage it yourself as you may not find someone to, and if you did, the kick back to them would bump your expenses.
This deal is not too good to believe. It might be right for you depending on your goals etc but don’t get a pair of blinders on.
Expense is negligible in this case as i need to pay only property tax on the land. All utilities( water/sewer/electricity/garbage) are billed directly to the renters. All homes are owned by the renters and so no expense in maintenance of them as well.
For an investment of $35K, a net income of $12000 per year for me looked like a good deal. I might be missing something here. That’s the reason i am seeking help.
Its easy to look at it that way. What about the other 3 lots, do they need any type of mowing? That has an expense right? If you have to evict a tenant for non payment, that has an expense? If you lose one tenant, you lost 33.3 % of your income as opposed to 1 tenant in a 50 space park ( 2% of your income) . What if a water line to the home breaks and the tenant does not fix it ? Any trees? Does the pad or road potentially ever need maintenance? Something like this could easily wipe out several months of income or even a whole year. You can ignore the other 3 spaces because you will have to do work or spend money to get them filled. That is your potential upside but you do not want to pay to do that work.
There is expense to running a park like this . There might be small accounting expense, is there a permit fee?
While I believe there can be merit to something like this , I think it needs to be looked at with the aforementioned items in mind to keep an honest view of what might happen and/or expenses that you might be overlooking.
Before you proceed with a purchase you need to educate yourself on the operation of a income investment property. Expenses run between a low of, at the very best, 25% to well over 50% of rental income. Economy of scale is extremely important. Property taxes, insurance and other fixed costs remain the same whether your income is $600 or $6000 per month for the most part. Evictions can be expensive as well as code compliance and lost income due to vacancies. On a small operation road and tree issues can easily eat up a years income.
Remember also that if you pay cash or finance the $35,000 has a cost of about $145/month based on a 5% return or interest rate.
A potential return of a couple of hundred a month may simply not be worth the effort.
I agree with those gentlemen, this deal is too small, you will have hard time to sell someday, but if you just want to get a good return for your small investment, here are my answers:
Ask the seller for a Survey or/and Permit. You also can contact the city/county’s zoning officer about the permit or zoning questions.
Ask any real estate agents you personally know, they will be glad to refer you some good title companies in their network.
A park like size, you really need to manager it yourself. It does not make any financial sense to hire a property manger.