New MHP investor?

I am looking into buying a 21 space MHP an hour away from me. It has 4 empty lots, 2 homes owned by tenants and 15 homes are rent to own units with 2-4 years left to pay on them. City water, sewer, street and trash pick up. Not a bad area but the homes are kinda trashy and old. The numbers ($$) really make since on it. The existing manager has left (reason there selling) and can not be reached. What are some good questions I should ask and what are the potential problems I could have besides collecting money. Thanks.

Buy the ‘30 Days of Diligence’ book off this website.  Attend the next Bootcamp.The bigger the gap between the way the park was formerly managed, and the way you plan to manage it, the more turnover you’ll have.  The high number of POHs in your park is a concern.  We purchased a park 2 years ago that had a lot of POHs and that was grossly mismanaged.  The previous owner/manager took absolutely any tenant into the property (no background checks, no security deposits).  We experienced 50% tenant turnover in the first year because we enforced no-pay no-stay and ran the park properly.  Our test ads showed us the economy was very strong in that market, and we did get those homes re-sold fairly quickly to new residents on which we did do background checks and had pay down payments, but we were having homes come back to us every month.  On the other hand, the first park we bought was all ROHs, and the previous owner/manager was checking backgrounds, taking security deposits, and enforcing no-pay no-stay, and we 0% turnover - even bumping rents to market (50% higher) over the first 12 months.So pay close attention to how many POHs there are, and the screening, if any, done on their occupants.Your mileage may vary,-jl-

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Thank you for your time in quick reply. Can you elaborate on the concerns for the number of park on the homes? These homes are old and I would not want to own them if it was even possible, due to the maintenance liability on them. I see they’re only value as being in place and someone willing to rent to own the units. If they were to default on their contract I would most likely remove the existing home and replace it with a newer model.

Shane,I’d want to know the condition of the RTO homes.  How much deferred maintenance is there?  Are they up to local safety codes (smoke detectors, dead bolts, sturdy steps with handrails at all exits)?  If not, what will it cost to upgrade them to meet them?  Soft floors?  Popping or flickering lights or light switches - signs of potentially dangerous electrical problems?  How many of the the homes were manufactured pre-HUD (pre-1976) as the standards varied widely then and insurance companies charge more for these homes or refuse to insure them?  Can you make some relatively minor cosmetic changes to significantly increase the appeal of the property (new signage, streets repaired, better landscaping, general clean up…)?Kurt

Shane,What is the lot rent in this park, what’s the price of this park, and who pays the utilities (and are they city water and sewer)? Let’s get a quick handle on what it would take – price wise – to make this a good deal. Just trying to keep you out of trouble.

The lot rent is 150.00. All utilities(city) are paid by the tenant. City Street and trash pu. Most of the homes are pre HUD. Asking price was 300k now 200k. What is my liability for the RT0 homes? They have been under contract for as little as a year and up to 5 years on 1 or 2. My plan ultimately would be, as the tenants leave a home vacant, replace it with a newer (post HUD) unit on a RTO basis.

17 lots occupied x $150 lot rent x 12 x .7 x 10 = $21,420 x 10 = $214,200. At $200,000, this deal is around a 10% cap rate. The only way I would do this deal is if the market supports a higher lot rent – like $200 per month – and you can increase all the lot rents because 15 of those 17 are POHs and they won’t know the difference. At $200 lot rent, the deal is more like a 14% cap rate, and now there’s enough money to make the brain damage of those 15 old POHs worthwhile. I’m assuming the POHs are worth -0- in that the total cost of renovations for each is as much as the home is worth.I would not bring in any new homes into this park as the numbers won’t support it. At $150 lot rent, your total home budget is only $12,600, which means that, after cost to move and set, you only have a budget of $7,600 to buy a home and renovate it – and that’s nearly impossible. Hold off on bringing in new homes until the rent in the market grows significantly higher, unless you find an amazing deal on a repo or something. You would certainly never want to swap an old home that is already in your park for a newer home, as all you are after is the lot rent, and the lot rent is the same whether the home is old or new.

Thanks for the advice, good stuff. Just found out the park is not zoned properly for a MHP, therefore the 4 vacant lots can’t be filled unless we can re-zone the property. The existing homes are grandfathered in and can stay or be replaced by the owner of the home. If they are pulled off they cannot be replaced at the current zoning. Thoughts?

How difficult is it going to be to get the correct zoning so you can fill your empty lots?  In other words, does this park comply with the city’s current rules regarding parks?  (set backs, density, etc.)  I’ve run into this issue before and some smaller cities might work with you to get this park where it needs to be.  Plus, that would be a great piece of leverage for a price reduction.  Guarantee you that the seller knows about this issue, but he may not know how to fix it.  My suggestion is to get cozy with the zoning guy and have him start looking for solutions to your problem.

The zoning guy seems to be very reasonable but ultimately can’t make the final call. I have a concern that a few of the homes might be a little close on the setback from the road. I brought this issue to the broker and he was shocked by this news of the wrong zoning! Hmmm?

You need to get a Certificate of Zoning from the city. They have three legal choices to declare: 1) legal conforming 2) legal non-conforming and 3) illegal. If it’s #3, then the park is valueless. If it’s #2, then the current zoning does not matter because you are grandfathered and all lots can be used whether currently occupied or not – the inspector does not understand the law correctly. Reference the post I have on the forum regarding the recent Missouri case law regarding mobile home grandfathering. That being said, I’m not sure a park this small will warrant the legal bill to try and enforce that – but you should try your best nevertheless.

Thanks Frank I’ll check into that.

If this would be your first park–pass.    There are many other parks with fewer issues and less or no poh.

I’m struggling with walking away from this deal. Its netting currently 40k a year on 17 homes and lots, while it will decrease each year as the homes are paid off. Not bad for a 200k investment. Totally confused!

This deal does NOT make $40,000 per year! It makes around $20,000 per year. The other money (if it even exists) will be erased in repair and maintenance, bad debt, property tax, insurance, etc. You buy parks based on lot value. And this deal is not that compelling, as far as I can tell. I would certainly not cry if you lost this deal – you might be doing a lot more crying if you buy it.That being said, you’ve seen it, and I’ve not. If you think this is the hottest deal of all time (location, etc.) then tie it up and do some more diligence on it, such as a test ad, etc.But, as you can tell from the other posts, it is not a deal most of us can get that excited about on the surface.