park evaluation

mobile home university
1

want to get your opinion on a deal i have under contract.

89 lots, 31 lot rent only( $170), ($480) 52 Park owned homes, 6 vacant lots

park has two phases to it. phase 1 has paved roads and master water meter ( city water) Phase 2 has gravel road with individual water meters for each lot. all lots have individual septic tanks.

park is on about 70 acres, with about 35 undeveloped that has timber on it.

seller financing

sales price $1.3 million

down payment 200k

note at $1.1 million 5% interest 25 yr amort, 10 yr call

trailers are 70’s, 80’s some 90’s

what would be the operating expenses with septic tanks? 60% or 70% for operating expenses for park

obviously a little high on POH’s, could i sell for cash to get out of them?

this would be first park, and it is about 5 minutes from me.

thanks for the help!

2

Value:

Real Estate: 83 (lots) x $170 (rent) x 60 (I’m still unclear from your description above whether the park pays the water bill, or not, but let’s be conservative) = $846k

Wheel Estate: 52 x $5,000 (anybody’s guess here on what each home is worth, get inside each home and figure it out) = $260k

==> Combined value is $1.1mm

Yes, you can and should sell those homes. It is impossible to make money if your delta (total home rent minus lot rent) is anything under $150/mo. It’s generally break-even at/around a $200 delta, and profitable above that. That said, save yourself the brain damage and time and hassle. Just sell those homes to deserving families and get out of that business.

I’d look at that timber. What can it be sold for? I know one guy who bought a park with lots of trees on it, cut down the trees, paid off his bank debt, and owned the park free-and-clear.

Buy every book off this website. Come to bootcamp. Get all your questions answered, and ones you don’t even know you have yet.

Best of luck,

-jl-

3

sorry for the confusion. to shed a little more light on this park.

89 lots, 6 vacant lots

83 trailers, 90% occupancy

the park basically is split up into two sections. there is a county road that goes right through the middle of the park. north of the road is 31 lots, water is metered and charged directly to mobile home owners from the city. stone roads ( is that an issue)

south of the county road is 52 trailers, master metered, with park paying for water

paved roads

Current lot rent is $170, market rents are $200

some major things that jump out on the expense side

$2,000- $3,000 water bill a month ( so need to sub-meter and bill back to tenants) roughly $200 per lot for meters and install

A big problem is $90,000 salaries for 4 employees. for park manager full time and assistant that is part time, park manager also gets health insurance

full time maintenance man, and part time maintenance man.

could this park be managed by one manager? collect rent by mailing rent to po box? have an on site greeter to show POH’s and then hire maintenance when needed?

there are 52 park owned homes and 31 lot rent only, is this a deal killer with that many park owned homes? they rent for $400- $450

park is 1 mile from major highway with large cities 30 miles a way and smaller cities 10 mins away

park has large lots, 98 acres total, with 35 acres undeveloped

seller financing

1.3 million

200k down

5% interest, 25 amort, 10 year call

game plan

  1. raise rents to $200

  2. fill empty POH’s

  3. put in sub meters

  4. have rent sent to po box, and hire a greeter to show properties

  5. hire maintenance man to mow and repair as needed

water savings - roughly $30,000 a year

manager savings - almost $45,000 ( half what they are paying now)

please advise if this is a good deal?

4

83 lots x $170 lot rent x 12 x .6 = $1,015,000 + the value of the homes (at $4,000 each would tie back to the price). Upside is rent increase to $200 and sub-meter and bill back all water, which would take it to a roughly 14% cap rate.

You can definitely run this park on a single manager for about $1,000 per month and free lot rent or house. You will, however, have to hire some subcontractors on the front end to rehab those vacant homes (and more homes as they become vacant). You will probably need $200,000 of capital available to remodel the homes.

I would tie it up and then focus you diligence, in addition to the standard items, on the results of a test ad, the condition of the POHs (get a written bid now on the vacant ones and see how bad the bill is going to be – and then assume they are all in that condition) and becoming an expert on that market.

On the price, I would try to get it down $200,000. It really needs to be $1 million flat, with $200,000 down and the rest seller carry non-recourse. I hate to allow the houses to be worth $4,000 each, as they will probably need $4,000 each in rehab, and will then sell for $4,000, so you are probably going to eat the $200,000 of value you paid for them.

5

Thanks for quick reply frank!

Maybe i was unclear on the park owned homes. of the 52 park owned homes, 5 are vacant the rest are on rent to own agreements and currently rented. Should I still figure a repair price for those even though they are currently rented? There is quite a bit of mowing for the common areas and the lots are very large, is this a deal killer? is the 52 park owned homes a deal killer?

6

If you are looking at a property with more than half rental units why are you not looking at apartments that hold their valve vr. mobile homes that depreciate like cars? For instance what where some of their heating cost for January for instance, if they were over $200 for heating what is the ceiling for rent your can charge? If this property has 50 old homes one maintenance person will be over whelmed since some will need totally rehabbed to be HABITAL. Sometimes we need to consider if you the park owner would not live in the home why should a renter? This business is more than just about MONEY!! Some park owner actually live in their parks and enjoy the people instead of owning multiply parks and flipping them. Bottom line is to make a profit but also not to be a slum lord since our individual actions can reflect negatively on the business in general and cause an outcry (government is just looking for more ways to interfere) that brings unnecessary attention to all owners.

7

Frank - in your response above, why did you multiply by 12? I thought the basic formula was: # of Occupied Lots x monthly lot rent x 60 or 70 (depending on who pays water/sewer). Using that formula, I arrive at a valuation of $846,600. I assume the “.6” represents 60 percent.

Thanks in advance for your help.

RL

8

The 60/70 multiplier takes you to a rough 12% cap rate. I was using the long-hand formula for a 10% cap rate. Yes, the .6 implies a 40% expense ratio. We use the 60/70 formula to make basic first offers, assuming the seller will counter back and we settle at around 10% cap rate. You are correct in using the 60/70, but you can’t always get that price. I was trying to demonstrate the floor.

9

Thanks Frank! So, in order to arrive at a 10% cap price, if expenses were 30%, would you just substitute .7 for .6?

10

Yes, that’s absolutely correct. If the tenant pays water/sewer, then it’s 30% expense ratio, if the park pays then 40%, and if the park is small (maybe 20 lots and under) use 50% to be safe.

11

hey frank,

Tried getting the seller down, he will not take anything less than 1.3 million. his accountant told him it was worth 2 million (lol) and the broker said i am going to miss out on the deal of the century if i dont buy it. however, i am assuming that managing 52 park owned homes (63% of all trailers in park) will be very time consuming and costly. I already run another business, so time is not something i have a lot of. What should i be looking for as far as park owned homes to lot rent only in parks? if i found 100 space park is 25 poh’s still too many? what is the highest tolerance you give to park owned homes? also, the realtor told me that if i am looking for a lot rent only park that i am dreaming and will be buying at a 6% cap with 10% cash on cash. your thoughts?

12

Yes, that’s absolutely correct. If the tenant pays water/sewer, then it’s 30% expense ratio, if the park pays then 40%, and if the park is small (maybe 20 lots and under) use 50% to be safe.

13

Carl -

Have you purchased and read the materials available on this website? Have you attended bootcamp? I’m a little surprised anyone on this forum would actually suggest owning an apartment complex. If apartments still seem like the better bet to you, and you’ve not read the materials, then get going man, and read up. If you have read it all and still feel apartments are superior to MHPs, then so be it. But I’ve honestly never met anyone with experience in both asset classes who still prefers to invest in apartments v. MHPs. The name of the game is to sell those depreciating mobile homes and retain the (relatively) maintenance-free land underneath.

My 2 cents worth,

-jl-

14

Jefferson In all the parks I have owned they were ALL TENANT OWNED HOMES, PERIOD! To own a property with 50 rental homes is not my path in owning parks and FIRST TIME BUYERS with lots of energy and little experience can easily make some sad experiences that will last a lifetime. For 30 years we have made a fantastic living owning one or two great properties at a time on water or a destination park and owing then long term. Being a Warren Buffet or Sam Walton is fine but my residents receive the owner’s attention–they pay the bills. All business types have ebb and flow and at times one needs to remember going down a certain path singularly and ignoring other business types can be fool hardy. For instance I have bought farms that in 15 years sold for 10 times what I bought them for (the farm did not need a manager or deal with tenants) and right now with our high tax rates; foreign investments are appealing in CERTAIN locations over the USA. LoopNet for example is good place to look for comparisons on businesses. This forum is a tremendous service and thank you for the great wealth of information–yes it takes a lot of dedication on your part!!!