Wanted some feedback from regarding a plan I’m throwing around:
Buy a 33 lot park that has 14 owner occupied spaces with 19 pads empty. Lot rent currently $100 and should be around $150. All empty pads have hook-ups ready. Buy this for 120k.
Bring in 19 unit to place them on the rent-to-own program. Buy units for $1500-$2500 and put $3500 in each one plus 2k to move them. 19 units would cost 152k. Rent-to-own for 30 months at $475-$500.
Park would now be worth 415k with $150 lot rent and 10% cap. Park would have only cost $272k and if you factor in the profit on the MH even less. Down fall is this might take 6-8 years to accomplish.
A popular question I see asked is “Whats your plan?” or “Whats your exit strategy?”. My plan is to hold and grow the number of income producing properties. My exit strategy is when I’m old and gray to start selling off my investments. I’m still on the younger side… Sorta.
Capital is tight so while you can finance the park I would be coming out of pocket for the mobile homes. I just wonder is my money spent better else where? Would love to hear everyone’s feed back!
I’m worried about the market, in that $100 is a really low rent, and it sometimes suggests a small town with a weak economy and low competing home prices. The national average for lot rent is around $275 per month, so you are really, really low on a national perspective, even once you raise the rent to $150/month.
The second issue is the budget on filling those lots with homes. You are budgeting $8,000 per home. We can’t even buy decent homes at that price, much less rehab them, move them, set them, skirt them, build stairs, hook up A/C and hook up utilities. We use a number closer to $20,000 to $30,000 per pad for our budgets. If you are the greatest shopper in the world, you will still pay about $8,000 for a decent home, around $2,000 in rehab and $5,000 in the move which totals $15,000 – nearly twice your budget.
My final concern is why you are doing this to yourself. You are buying a park that is over 50% vacant (which makes it impossible to finance). The value going in on those 14 lots is only $84,000, so you are overpaying around $40,000 on the front end. Then you are going to have a nightmare of bringing in and unloading those 19 homes. And in the end you’ve spent $272,000 (all in cash unless you find a crazy bank) on a deal that’s worth maybe $360,000 (based on $150 rent at a 10% cap rate, with 40% expense ratio).
If you just found a nice 80% occupied park at $1 million, you’d have spent the same money on the down-payment, have a great return-on-investment day one, have no worries about home renovations on a monster scale, have the upside of filling the last 20% occupancy at your leisure, raise the rents annually, and be miles ahead, When the easy path is more profitable than the difficult path, then there’s something terribly wrong with that plan in my opinion.