Park Evaluation -125 lots, public water & sewer

mobile home university
1

Hi all -

I am currently thinking of making an offer on the following park:

Location: Working class suburb (pop 18,000) 6 miles south of Buffalo, NY (pop 280,000) and within the Buffalo Niagara Metropolitan area (pop 1,100,000).

Suburb population decreased 6% since 2000

Buffalo population decreased 12% since 2000

Metro area population decreased 2% since 2000

There are 4 other parks within a half mile. One small one is full,Two are almost fully occupied, the fourth is at 50% vacancy. Their lot rents range from $290-$335.

Rentometer shows an average 2bd apt rent for the suburb of $460/m

Craigslist shows 2b apts at the $600-700 range

The Park:

125 lots

84 occupied and paying lot rent of $320/m

11 POH paying $320 total, no additional rent

12 vacant homes

29 lots vacant

City Water (not separately metered)

City Sewer

Owner’s stated Gross Income: $322,560

Owner’s stated Expenses: ($161,243)

NOI $161,317

Recent Appraisal Estimated Expenses: ($187,013)

NOI using this expense number: $135,547

Appraisal Value: $1,525,000

Asking Price: $1,500,000

Using the appraisal expense estimate puts the park at:

12 CAP = $1,129,558.33

10 CAP = $1,350,547.00

Broker indicates owner will not accept anything below 1.2-1.3. Current offer on the table for 1.0mm, according to broker the owner is unhappy with this but has agreed to discuss with the offeror.

My main concern is the competition from the four nearby parks and the low rent rate for 2bd apts in the area.

I have posted a test ad at $575 lot rent incl and will update this thread with any results over the next few days.

Any other thoughts greatly appreciated.

2

Your test ad will tell all. I too would be concerned with the RentOMeter rental rating and the declining population. Doing ‘boots on the ground’ research like CraigsList is probably better. But see what your ad says. If it pulls well, then you know you have the ability to infill any vacancies. If not, then the park is really troubled.

Quick & Dirty valuation we use is:

84 (only pay for occupied lots) x $320 x 60 = $1.6mm. So it looks like you’ve got a more than fair price if you can get it under contract for $1.0mm. Definitely bill for water. That will be the right environmental thing to do, and the right thing for your NOI. Then recycle the cash into new/used MHs to infill. Build up this park to 100%, then refinance, pull out some cash, and repeat with another similar park.

Good luck,

-jl-

P.S. Operating expenses seem high. Come to Bootcamp and learn what normal expense ratios should be. That’ll help you pinpoint what you need to do to better run the park.

P.P.S. Many banks will not like a park like this with such low occupancy (less than 80%). If you can find such a bank, great. If not, your only hope may be seller carry.

P.P.P.S. We pay referral fees and are open to partnering on deals.

3

I think you have to be wrong on the apartment rent of $460. How did you get that figure? Something is wrong with that.

The test ad will tell the story on what the market is really like.

The other parks will not affect you, as you will have to bring in a home yourself to fill a lot. I assume that your park is not significantly worse than those, and that your homes are older so you won’t be “raided”.

4

I got the 2bd rent average of $460/m from Rentometer. I agree it seems wrong. Craigslist and a few other apartment websites show most listings in the area for the $600-700 range and this seems more realistic. However, this is western New York and really cheap apartments are not unheard of (which is one of my few concerns about this park location). I’m going to dig a little deeper into the nearby apt rental rates today.

So far the test ad has generated six inquiries in about a half day. It was only posted on craigslist.

My wife and I are going to drive the park tomorrow - any major things we should be looking for visually?

5

If the park pays w/s/t on an older MHP, and it is not submetered, I bet big money the expense bump is in the water / sewer charges. The second big place I would look for expenses to shave are on how management and maintenance are run. I once looked at a park and the owner had his travel expenses to and from the park payed by the MHP, and he traveled in a helicopter.

The line items tell all. He might also be putting all cap x repairs in as a expense to lower his yearly tax hit.

I have been to that pat of NY, and rents can be all over the place. That part of NY has been seeing much contraction over the years, so be careful in your evaluation. You might have eyes look at he deal that are used to looking at deals all over the states. If this were really an area with a ‘slow drip’ decline- I might view this park as a one year hold, fix the w/s/t, get the homes up and sold, get the park owned homes on target with local rents, or sold and flip it as a stable park. If you can buy it at a correct CAP, and I do not know the market, and ANYONE who does not really understand the market that tosses out a CAP rate should purchase it at is… well… shooting from the hip to say the least. well- if you buy it right, it has several hundred thousand in upside I am sure, well, probably- maybe… the tale is in the line items of the expenses, and in the rent survey.

You do not have time for a bootcamp prior to buying- so maybe the home study and then the bootcamp? Or maybe you find a partner if your not rock solid on direction and operations, or maybe a consultant?

side notes- I have walked away from 2 contracts where the CAP rates, under contract, were both over 20. The lesson- CAP rates are important- but they are only one piece of the puzzle. I have also tried to buy parks at a 4 CAP, and lost because I was not the high offer. In dating terms- and I like dating analogies, its like a really, really attractive (girl / guy), they might catch your eye but not all of them are keepers… Charlie Sheen and Lindsay Lohan come to mind- both nice to look at, but they are walking train wreaks… in my book at least…

Also- you ALWAYS make your money on the buy side, and realize the gain on the sell side. If you do not buy it right, your doomed. So make sure you buying right, price, terms, due diligence, project and operations forecasting, valuations as is and potential valuations once stable… blow any of these and your leaving money on the table at best- and it goes downhill fast from there.

6

I am one of the owners of the Sidway Building in downtown Buffalo.

We are getting $1200 for our 2br 1ba units of 855 sq. ft. I think our units are kind of plain and there is no covered parking.

I know the Sidway is a different animal from MHs, but it tells you something about Rentometer. I suspect Rentometer’s data contains a lot of war zone properties.

7

Thanks for all the replies.

Some additional info:

The following apartments listed on Craigslist are all 2bd within 1.5 miles of the park, in order of closest to farthest:

  1. $450/m incl water & trash

  2. $410/m + gas and electric -“small” - 2 of these units avail

  3. $700/m incl utilties

  4. $650/ incl water & heat

  5. $675/m incl heat, hot water & garbage - 1/2 off first month

  6. $700/m incl heat & hot water - 1/2 off first month

Average = $570

Home asking prices on Trulia within 1 mile of the park:

  1. $80k 3/1

  2. $65k 3/1

  3. $50k 3/1

  4. $60k 2/1

  5. $62k 2/1

Average = $63k

Competitor park 1000ft away: lot rent $355, 3 homes for sale from 12.5k-15.5k. One home listed for rent for $600.

Test Ad update: 8 inquires in 24 hrs, posted only on Craigslist. Ad was for $575 incl lot rent.

So, my take is the local apt rents are little lower than I would like, the home prices are much lower than I’d like, but the test ad seems to be pulling pretty well.