Newbie here and I would love some seasoned advice. I have a mobile home park under contract and am in the process of doing the due diligence. It’s a 48 pad park, with 34 park owned homes, 4 lot rentals and 10 empty pads. Price is $190,000. It’s on county water but septic tanks.
Of the park owned homes, 6 are occupied and averaging about $400 per month rent. The lot rentals range from $200 to $275. At about 20% occupancy, i’ll be able to step into the park and have existing cashflow to cover most of the initial expenses, including the loan. The condition on the other park owned homes range from fair to haul away. I think I can get another 10 homes renovated in short order and get them rented up in 3-5 months. (I’ve had people approach me when i have visited the park and teaser craiglists ads have generated some positive inquires.)
The negatives: The park has gone back to the bank twice in the last 5 years. In doing my due diligence, i’ve come to the conclusion that it’s partly due to poor management (one owner was a long distance away and didn’t have good management on site). The only other problem i’ve been able to identify is septic tank issues. The park has 10 septic tanks – with sometimes 5-6 homes hooked up to them. Too many homes for too few septic tanks. There have been some sewage issues. I plan to service and clean up the septic tanks as soon as i take over. Also, if necessary, I will take some homes off the market so as not to overburden the septic tanks.
There are other parks in the area, and average rents are in the $400-450 range. If my initial analysis is correct and I can service the loan and other overhead costs based on the existing tenant base, I can then underprice the competition with $300 or $350 per month rents to fill up the park, and then eventually try to raise rents.
Where do you plan on getting the 50k+++ of money to clean up the park and renovate the remaining homes?
My first order on the septic is installing low flow shower heads, low water usage toilets (just a new toilet is low water usage), and low flow faucets. Try to get the water consumption down. Have strict limits on the number of people allowed in each unit.
There is potential with this park, but, just recently turning around a 20 unit park, the costs involved in doing it can add up quickly.
Based on some initial pricing out, I expect the 10 homes that I can quickly get up and running to run about $1,000-$1500 each in fix up costs. I have that cash. If there are some unpleasant surprises – aren’t there always? – I can simply slow down the process of renovating and bringing the homes online, especially since existing rents can cover the estimated $1200 monthly loan payment and insurance and taxes costs. I also plan to continue to rehab the homes and do additional fix up to the park from cashflow, since i don’t immediately need to pull any cash out of the park.
My big concern at this point is the septic tanks. There are 10 septic tanks and i’m guessing that’s good for 3 homes each, or a total of 30 homes. In time I could seek to upgrade the septic tank system and/or add more septic tanks, but my fear there is this would jeopardize the “grandfathered in” status of the park. (The area is not zoned for mobile parks, but this park was established before zoning was put in place. So it’s essentially a nonconforming legal use property.)
Is my assumption that you should not hook up anymore than 3 homes to a septic tank sound? Do folks do more? And if so, how to maintain them without issue?
MHC am i missing anything? Are there any other questions I should be asking? Are my assumptions sound? I would also welcome feedback from the other longtime owners/operators on this site.
I honestly think the Park is overpriced unless there is some redevelopment value not being considered.
With only 10 units occupied, and using a blended lot rent of 250 (Park owned home rent does not appraise) means you’ve got a high level Park valuation of 10 lots * 250 * 50 (multiplier 12 CAP near 50% expense ratio due to septic and low occupancy) is about 125K.
After that you sound like you have a large number of homes that need to be hauled off, or thrown into a dumpster which will cost about 2K per home or maybe you can have them given away as hunting cabin specials at no cost - this could be a big cost though so you need to account for it.
Maybe low water flow stuff will work, but you cannot control (or maybe you can in the rules) how tenants conserve water in their homes - and your goal should ultimately be to have tenants own their homes, so it is advisable that the number of homes hooked up to septic systems meet the maximum flow specifications of the systems. As you said there are too many hooked up today it makes me wonder if they were ever permitted, which your city or county should have record of…and if they’re not permitted and illegal expect to pay a lot of money to fix that issue.
Since two banks have been burned on this Park I doubt you would be able to easily get financing on it unless you’re personally guaranteeing it - and even then they may not, it might be a cash only deal for you. Unless you have turned around Parks like this before the banks won’t want to touch this hot potato.
Also keep in mind that even with the 10 occupied units there is a good chance half of them are felons, sex offenders, and have issues that would be unacceptable to run a respectable Park. You will likely have to evict people before you can get the safety, pride of ownership, and other building blocks in place to get the needed momentum to turn it around.
After backing out of enough transactions I have come to the conclusion some Parks are not worth turning around, and may even be easier to build from the ground up. You don’t want either of those deals, and this sounds like it may be one of them unless you can get the price way down and can commit the time to get it handled.
Here’s what I’d do before you waste any more time on this deal:
Contact the two prior owners of this park and find out why they failed. You can get their names from a title search coupled with Switchboard.com. It has been our experience that people who lose a park to foreclosure are more than willing to vent if you ask them what happened – and their insights are more valuable than any other diligence you can get. My bet is that there is something wrong with the homes or market that makes filling those homes impossible, and that’s why they are so empty.
Contact the State, then the County and then the City to get all of their septic regulations and insight as to your ability to replace the tanks and/or leach fields. If they say anything other than you are 100% approved to fix or replace all of the tanks and the leach fields then bail on the deal.