First of all, I am a newbie Who just start looking at the mobile home park investing. I have found two parks that is within my price range. Both parks were built in 50’s and I would really appreciate your feedback on what possible problems with the old MHP.
One major issue I could think of is the aging water and sewer pipe may incur high repair expense.
Also I noticed that both parks have dense homes on a relatively small lot. For example, one park has 40 homes on a 2.2 acre lot. Does it means the trailer must be quite small as well? From the picture, Most of the trailers are old and in poor condition. I am a little worried that the tenant could abandon the trailer as there isn’t much value left. And I would end up spending money towing the old trail away. And I am even more worried that the modern mobile home may not fit into existing lot.
Will those two issues enough to kill the deal?
Is there any other serious problem which I overlooked?
One thing to consider when dealing with parks from the 50’s is that you may also run into master-metered power and gas systems. Be sure to check to see if those are present in these parks.
Having a density of nearly 20 homes per acre is very hairy. We typically pass on almost anything that exceeds 10-12 for all of the reasons you stated above. It’s not a hard and fast rule of ours, but usually parks with that kind of density tend to not meet our buying criteria based on what we like. In a park like you are describing, it might even be impossible to get a new home put into any lot that goes vacant due to any number of issues involving the mover or the city.
As with any deal, you have to weigh the good with the bad and see if you can make it work. If you have this deal at a 15-20CAP price, then you can probably overlook a lot of things and be comfortable with your risk.
We aren’t so concerned about the age of the park, but we do know that parks built in that era sometimes have master-metered electricity and gas. In addition to that, that era also tends to have smaller lots. On the evaluation side of things, we pad our R&M figure a little to compensate for the likelihood of more utility repairs.
A lot of the problems you find with these parks are generally offset by their unusually good locations. For example, the last one in this era that came across my desk was on a main road in Riviera Beach, FL. It was a pretty awesome location but had so many problems that it was being demolished for it’s land value.
Mobile home parks are interesting as we are the only real estate sector that does not have the “perfect” property. All of the great locations are older parks, with small lots and funky utilities. All of the new parks have lousy locations in the middle of nowhere, banished by city hall from being in the city limits.
Hotels, for example, can point to something like the Plaza in New York City, which recently sold for $1 million per room. But that’s because city hall loves hotels, and allows them to do any renovations they desire. In our industry, they’d claim we violated our grandfathering and yank our operating permit.
This challenge of evaluating the strong and weak points – and deciding which has more weight – is what makes this business unique and interesting. But if anyone ever tells you that they own the “perfect park” then you know they’re lying. Even that park in Newport Beach has master-metered utilities that cost a fortune to upkeep. But the location outweighs any such issues.
My biggest concern beyond infrastructure in a community like you describe is tenant quality. Probably extremely poor and a lot of very old long term tenants. If the home owners are not investing in their homes they will eventually fall apart go vacant and become a ghost park.
These types of tenants can be very set in their ways and extremely difficult to manage.
If the parks are affordable then the land value is probably low or they would have already been bulldozed.
Most older parks like that are best treated as a cash cow, pull off as much profit as you can and put as little back into the property as possible. Get your money back out and then if it goes sideways in the future you can sell it for what ever the value of the land may be at that time.
Hi Eva, From a risk management perspective, one of the things most loathed by park insurance companies are pre 1976 Mobile Homes. They are often small and were built prior to the HUD building code, thus, there are often substandard homes with potential utility and structural issues. If you are buying any of these homes with the park purchase, you’ll want to have them inspected to make sure their electrical and other utility systems are in working order and safe. And even if such is the case, only the more expensive / less coverage park insurance companies will make an offer on a smaller park with multiple pre-76 homes owned by the park.
I love Frank’s comment:
“But if anyone ever tells you that they own the ‘perfect park’ then you know they’re lying.”
Every thing in life has trade offs.
Mobile Home Parks are no exception.
I also love Frank’s comment:
“All of the great locations are older parks, with small lots and funky utilities. All of the new parks have lousy locations in the middle of nowhere, banished by city hall from being in the city limits.”
Just like searching for a residential home you need to have your list of Dos and Don’ts and be willing to comprise or not comprise on your list.