I just went under contract on a mobile home park in Odessa city limits. I am not from Texas and my only park is in Minnesota. I know West Texas is heavily dependent on the oil and gas economy but that is as far as my knowledge goes. Looking at Odessa’s metrics it has a 125,000 population, $175,000 median home value, 3 bedroom rents of $1,500, and an unemployment rate of 10%. An argument could be made that Odessa/Midland is one big metro area with a 350,000 population. Lot rents are strong in the area at around $400.
The park is full so there would be no infill required and the infrastructure is good with asphalt streets, cement parking pads, sidewalks, pvc water and sewer lines, and all city utilities. Homes in the park are all 1990’s models and it is a clean well run park.
There is not much upside in raising rents as they are about at market and no upside in filling lots. It is under contract at just about an 8 cap.
I would love some insight on the Odessa/Midland market. The heavy oil and gas economy is a concern to me. With the large population and in town location of the park how much of a concern should this be?
Another concern of mine is water supply. In West Texas is there a growing concern over water table levels, future rationing/increased costs? The park is on city water but still a concern.
Property taxes for the park are low, however rates seem to be high in Texas. If revalued at the purchase price the tax bill could go from $3,500 to around $30,000. To be safe I am using the worst case scenario in my numbers but how likely is it that they jump after sale?
What other concerns should I have in this market?
If it was your money are you buying this park in this market?
I live in Midland so can offer some insight. Midland and Odessa are often combined together as one market but are completely different animals. Midland is more white collar and conservative, Odessa is more blue collar and liberal leaning. When times get tough, like the oil crash last year, Midland tends to fare better than Odessa in terms of occupancy as its seen as a nicer place to live.
The park itself sounds like good infrastructure and won’t require much dealing with the city, which is good, because the city of Odessa is one of the worst cities you can deal with when it comes to almost anything. Heaven help you if you need something permitted. By contrast the City of Midland is a walk in the park.
Regarding water table, I would not be concerned about that. Nobody worries about that much out here.
As far as other concerns, I would just be careful of the type of tenants in your area. Odessa is notorious for having a pretty rough tenant base.
If it was my money, I would not invest in it but thats only because I’m already in the oil and gas industry and I want to diversify out of it. The good news is if you buy a good deal and want to get out, people seem to gravitate towards this area during boom times and you could probably get at least what you paid.
What is the breakdown of the employment base in the area? For instance, If it’s 90% oil and gas, do your tenants all work in oil and gas? If oil crashes, how will the other employers do? Look for diversity. If there is none, it’s a bit riskier. But your tenants may not work in O&G, so you need to dig into it.
Even if your tenants don’t work in the oil and gas industry, the entire economy of the local area still swings heavily depending on boom or bust. This affects everything from your employee base and competitive wages to getting contractors who have room for you in their schedule.
It’s not a deal breaker and you seem to be going in with your eyes open and aware of your risk/reward.
I would pretty much count on your purchase being reassessed at the purchase price for tax purposes. If it’s assessed higher, you can always point to your contract as proof of (lower) value.
If it’s assessed lower, you’ll have some extra wiggle room.