Mobile home park in Florida - need help

mobile home university
1

Hi Guys,

I’m new in the mobile park biz, I’m looking for buying a mobile home park in Florida.

I’m correctly checking an offer that has a really great CAP rate of 13%, the park also looks great.

The only things that concerns me is that the park has many trees (sewer problems? ) around it and that the park owns all the houses in the park ( 20 lots ).

19 lots are correctly rented

I wanted to know how risky is to be the owner of the houses ? and usually what are my chances to sell those houses to the tenants.

Thanks

2

A Park with all POH’s is probably NOT A GOOD DEAL AT A 13 CAP! Costs will eat you alive. Take the lot rents only (average of parks rearby in the same condition) subtract lot expenses, figure cap rate from that. Then add wholesale value of the homes. That is your ballpark price. What are the sellers maintenance numbers? If expenses are not 45-50% they are probably understated.

3

I disagree with Don’s estimate of maintenance.

We own a 80 space park in Michigan, and also own about 25 houses in the park as rentals. The problem we typically face when a tenant defaults (which is quite often here) is either buy the home from the bank and rent it out, or let it disappear from the park forever. Since it costs us $5-8K to move a house in, vs $10-15K to buy it outright from the bank, it makes sense to buy every one that gets foreclosed. Selling the house on land contract is no better for us than renting, since we would then need to pay the 6% sales tax each time we sell the house and face the possible new federal regulations for financing. Also, the total dollar amount would be the same as if we rented it out. Outside financing for our typical tenant is completely non-existent, with a 550 credit score about average here.

We didn’t set out to own over 20 rentals, but it is the lesser of two evils. Surprisingly, the amount of maintenance has been very low. All houses are newer than 1997, and typically in good condition. Biggest cost for us is hot water heaters. Supply of cheap labor for small maintenance issues is not a problem at all.

Good luck

4

Greg

It’s great to hear someone making a go of it in a tough economy like Michigan.

I agree that newer homes are less maintenance intensive.

But I stand by my opinion that a 19 space rental park is no deal @ 13 cap

I was refering to the older homes that in my experience are the majority of rental units.

I have one park with newer rentals and they are less costly, for the time being.

But when they get to 15 years old or so the maintenance cost will go up steadily. Starting with doors, bathtubs, soft floors, roofs etc.

As far as cheap labor do you hire these handymen as employees or just pay them do do odd jobs?

I am finding out the hard way the false economics of hiring the schmo instead of the pro.

With an 80 space park the cash flow may justify having staff.

With a 19 space park you are pretty much a one man jack of all trades operation.

5

Dan,

I do agree that with a 19 space park, the risk if something goes wrong with a rental is higher, since you don’t have as much to spread it out over.

We have quite a few decent carpenters and former builders in the area, so we just pay them by the job. We usually have several “projects” going on. People know if they screw up, we will never use them again, and since there is a decent chance of more work, it is a strong motivator.

Our biggest fear is that if we ever decide to sell the park, even with the numbers working, a high number of rentals will discourage potential buyers. But, like I said, an empty park won’t attract many buyers either, so we’ve chosen the lesser of two evils. Our lot rent is $320, and a typical DW rental would go for about $600 total. We aren’t making a killing, but at least they are occupied and not leaving the park.