Researching local MHC's (Park 1) - Comments welcome

I’m very new to MHC’s and heavily researching them now. So I cold called a couple of local parks within a few miles of my home. I know the owners but not personally.

Both where more than happy to chat.

The first park was a small 8 lot MHC with all POH homes. Has permitting for 7 more lots but no services to set them up. Private communal well with septic tanks and a central dumpster and all dirt lots with dirt roads. Clean park and you can tell it is well cared for but I think it is mainly because the owner micro manages his tenants personally without the use of a park manager as he lives right next door.

Owner claims they almost always run at 100% occupancy with a waiting list and since I’ve known the community through the years I think he is not fudging that. $400 to $450 rent with trailers built in the 80’s and 90’s. Says he never has a problem with finding tenants when they are empty and the biggest problem is weeding through the applications to sort out the hoodlums.

Claims $42,000 revenue with $37,000 net.

He flatly states that lot rent will not work since banks simply will not finance any homes on a lot. They all want the land as collateral too. He did mention he could carry the notes for the homes but stated there where serious problems when people did not pay the lot rent and it was a huge hassle and liability to get their trailers off the property upon eviction for non-payment. Says he has only ever had to evict one tenant in his rentals and it only cost him two months rent and $200 in court cost.

He is getting older and wants to retire from the MHC business. He owned 4 MHC’s but sold the other 3 and now is looking for a buyer for this one but it’s tough since it’s so small. He had a home/park deal listed a few years ago but wanted too much in my opinion. His main complaint is not being able to get away from his community for travel as it inevitably requires his attention on a regular basis.

He is asking $245,000 for the MHC as it sits. I assured him I was only doing research and not to get his hopes up but I am going out to visit him some next week and he will show me the in and outs of his park. He seems almost eager!

I’d be eager to sell, too, based on that price. While I don’t have many details, that deal is the kind that you would probably never want to buy because 1) it’s too small 2) the actual net income is probably more like $12,000 based on lot rent (and that’s being kind) 3) private utilities 4) dirt roads 5) 100% park-owned homes. In addition, every item the seller told you is complete fantasy.

The type of parks you want to buy have none of the above listed traits. You should, at a minimum, read our 10/20 book for the basics of what makes a park a winner and not a disaster – it will at least keep you out of trouble.

This industry is chock full of unscrupulous sellers who will try and pretend that their park has zero expenses and a line of customers waiting to move in. Your only protection is to know what you’re doing, and proceed with solid due diligence.

That’s why this forum is here – to bring out the truth.

Thanks for the reply and input. I know something is wrong with this kind of deal but I want to understand why.

The 2nd MHC I talked too yesterday was a little different. He had 50 lots with 28 units 20 of which where POH’s on city utilities. I’m going over to check out his park next week also. Not to buy or even pretend to be interested in buying but to just research and examine day-to-day operations. I know him a little better as our families where close in the past.

His rental’s ranged from $375 to $450 and his lot rent is $75. He is a retired older gentleman as well and the first thing he said when I told him I was researching the business “Hell you can have this one”. He is not listed but I know he wants to sell. I’ll post more when I actually visit that one.

Frank,

I ordered the 10/20 yesterday had a really long talk with Kristi… lol

Here’s a quick rule of thumb:

The ballpark value of a park is the # of occupied lots x the lot rent x 60(if the park pays water and sewer) or 70 (if the tenant pays water and sewer). On this new deal, the formula would be 28 x $75 x 60 (worst case) = $126,000. Even then, you have some additional problems with this deal, as the occupacy is less than 60%, which will make getting a loan difficult (lenders like to see at least 70% to 80% occupancy). This deal would be a whole lot more interesting, however, if the market lot rent is $200, and you can raise the lot rent after purchase.

I think you’ll find the 10/20 book enormously helpful.