Small Park Advice Needed-What would you value this park at?

I’ve been negotiating on an estate sale in my area for a 22 space community with city water and sewer. Since the owner died, it’s been difficult to get solid information, however I wouldn’t consider closing on this property unless all my questions were satisfied during the due diligence period. I’ve had to make some assumptions.

This much I can share:

Lot rents are $265 but lot rents at a park a few miles away are $416. This is a desirable area and heavily populated. Residents can be in a major metro city in 10 minutes or less.

The park is older and not very attractive at present and has older ugly homes. Half the lots are empty as the estate has had some of them destroyed/removed. More need to be removed and are vacant. Unsavory residents (druggies and the like) have been evicted. Those that are left, which are about 10 are good tenants I’m told. There are some POHs. The road is in good shape.

Water is being billed to the tenants but it appears it has been at a loss and the bills were large. There were some leaks that were recently repaired and the bills are coming down and I’m told the leaks should be fixed now. Sewer is included but the sewer bills were also very high due to leaks but should be repaired and down now to around $1000 a QTR.

There is also a single family home that brings in $1000 per month. It’s land locked within the community but appears to be a good sized brick home.

So things look like this:

Annual potential lot rents at full vacancy- 22 x $265=$5830x12= $69,960

Rent on house $1,000 x 12=$12,000

$81,960 Total income best case scenario, and yes I know that’s not going to happen!

This park will never be as nice as the one a few miles away that gets $416, but I’m thinking it should bring $300-$325 due to it’s great location. I would have to bring in homes and rent them or sell them as well. If I use a rental model and rent them for $650 including the lot rent the gross income goes to $183,600 in this “perfect” scenario.

My estimates on expenses would be 45-50% just on the lot rent only scenario.

Appreciate any an all thoughts!

Using F&D’s formula:

10 occupied lots x 265 x 70 (assuming you bill-through for water) = $185,500 for the land

FMV for the mobile homes (what you can get for them sold on a note in your park)

Call a broker to find out what the site-built home is worth, add in that amount

=

What you should pay.

Note:

You pay $0 for empty lots. Nice that they are there, and you can consider dropping some heavy coinage on mobile homes to fill them. But that said, you do not pay money for empty lots.

Also - see if there isn’t some way to not buy the site-built home. Leave it with the seller, and reduce the purchase price accordingly.

Get your water costs under control. Call American Leak Detection to find leaks. Then your regular plumber repairs them.

Have accurate meters on every home and bill the residents for their usage. You should be able to trace the number of gallons of water that come into your park, and on through to all your tenants. If you have common areas you water, you will not recover 100% of your water expense. If you do not, then the sum of your tenant’s usage should equal what you are billed for.

There is no such thing as sewage leaks. Only water leaks.

Please always use the search functionality of this website to find similar posts that will help answer your questions. In particular, these two will be helpful to you:

  1. ‘need help on 1st deal’ and

  2. 1st mobile home park Need Advice’

Best,

-jl-

Thanks Jefferson for you’re advice and the tip on American Leak Detection. I’ll definitely check them out.

I think I can purchase for close to that valuation but including the house and POHs. I will have to dispose of several vacant houses and just as you indicated a lot of money will need to be spent bringing in homes. I’ve yet to see a footer on a lot space as well which increases my cost on bringing homes in.

How would you handle an older park that hasn’t had any specific rules enforced and each tenant basically has done their own thing with regards to yards, out buildings, clutter, skirting, etc. Keep in mind there are no newer homes in this park, just older ones. Some I would guess are even 12 wides.

I was considering paying cash for this park but wonder if I should hold back my funds for a bigger community and use those funds as down payment. I’ve been watching for some time in my area and I just don’t happen on deals like this in my back yard very often.

Jefferson’s post was extremely accurate (as usual). I have turned around many parks like this, and what’s going to happen is that you are going to totally change the systems and some tenants are going to make it and some are not. Just changing the collections system to no pay/no stay is going to cause the poorer folks (or the ones that can’t prioritize their bills) to move on. Then come the rules changes, and there will be more casualties, You cannot predict who the winners and losers will be until you start the process. But it’s a good bet that a large portion of your existing tenants will not survive the new regime. As they blow out, you’ll have to renovate their homes and re-sell them. You should try to save every home you can, as bringing in new homes is extremely expensive (thing $15,000 to $30,000). Once you’ve remodeled all the homes you can, you’ll then need to fill the remaining vacant lots if you can afford to. The renovating and home renovating business is extremely capital intensive, so that’s why you should probably get a loan for the park – to save up your capital for the home attack plans. In addition, “sensible” leverage will give you a higher return with minimal risk.

This is a text-book mobile home park turn-around deal, and you should apply the normal due diligence to make sure that it is a winner BEFORE you buy it.

I’m always a fan of enforcing park rules. Every home should be skirted. No junk allowed in yards (kids toys, parent’s automobiles, etc.)

It’s a judgment call as to whether you should hold-back your capital and wait for a better deal. It depends on how good you are at finding better deals and how quickly. If you can find a better deal in 2 months - then probably best to wait. If it’ll take you 2 years, then probably don’t wait - you’ll make money on this for the next 24 months and likely be ahead of the game vs. doing nothing with your capital and then investing in the better deal.

Best,

-jl-

The homes appear to be fairly close together in this park. Are there some general rules on spacing between homes on an older park?

Not per se. You just want to make sure the density is legal. This is part of your due diligence - to make sure the park is legal (either conforming or non-conforming). This is covered in F&D’s manuals. You just don’t want to get in a position where the town says “Oh - that park you just bought - yeah, it’s illegal, you have to shut it down.” Or “You have to rip out every other home to get to a lower density.”

Do you diligence with the City and fire marshall and make sure the park is legal and that the distances between the homes are allowed. Be aware of grandfathering - the City might let the homes be 6’-apart now, but if you ever pull one out, the City may make you have 15’ between them. If there are those sorts of grandfathering rules it’s not a deal killer, you just need to pay a price that works for a business model whereby you either maintain the grandfathered ‘close together’ homes ‘forever,’ or you can survive losing half your pads when you bring in new homes to conform to the new laws for non-granfathered homes.

-jl-

There are no general rules, but clearly the things you have to watch out for are:

  1. Problems with the city regarding spacing and whether or not they will allow you to bring in homes to re-fill lots.

  2. The Fire Marshall forcing you to remove homes to increase the spacing

  3. That there is enough spacing to put 14’ wide homes on those spaces, as 12’ are rare and less than 12’ are non-existent

You should be able to determine all of these during due diligence.

I have this park under contract now at $182,500.

There are actually 11 occupied lots, one of which is for the manager who receives free lot rent. I felt this was a good deal until I viewed the house yesterday which is about 3500 sq ft… It has a basement that is flooding when it rains and gutters that have not been cleaned out in some time causing seepage into he roof and ceiling that needs repaired in one area. Various minor repairs are needed throughout. If the current tenants moved out, it would need to be rehabbed which would be expensive considering the size of the house. It has a 6 car garage! I’m thinking of asking for concessions from the seller.

Another area of concern is there is a deep stream bed that runs around half the park and the edge of a couple of lots touch a flood zone that per GIS maps has a 0.2% chance of flooding. In addition the banks are eroding from large rains which concerns me more long term. I’m wondering if some state agency would stabilize this if notified of the problem. Anyone have experience with this?

The flood plain issue does not sound that bad (although it definitely is a negative) but it all boils down to simple math. If it were me (and I don’t buy parks this small today but did in my early days) I would demand at least a 12% cap rate on the total cost of the deal (and that includes home renovation and all capital improvements). 10% is a good cap on larger deals, but there has to be some additional return for the limited upside due to the small size.

Here is my math on the deal, let me know what you think:

Purchase price $182,500 (before hitting seller for concessions to repair house).

Sales Price: $182500

Haul off 4 houses to the dump: $7500

Footers for empty lots: $15000

Repair Stick House: $20,000 (possible to get a seller concession here)

Install 10 used homes: $150,000

$375,000 Total

Gross rents per month:

10 x $265=2650

Home rented 1 x $375

10 x 595 (homes replaced and rented including lot rent) $5950

House 1 x $1000

Total hypothetical income after turnaround: $9975 per month or $119,700 (in a perfect scenario if accurate water and elec rebilling takes place)

119700

x.45 (hypothetical expense ratio) $53865

$65,835 NOI / $375,000= 18% cap before interest expense.

Feel free to pick this math apart. This park should bring $300 per lot per month in time. First order would be to get utilities to break even.

(20 lots x $265) + $1,000 [house rent] x 12 x .6 = $45,360. You can’t cap the home rent. So on a total investment of $375,000, the cap rate is 12% not 18%. But you then have no upside, as you are full at full market rent, so I’m not sure the deal is that compelling. On top of that, you are out $375,000 in cash (I’m not sure you can borrow on any part of this deal) so your total return is only 12% – and that’s a whole lot of money to stick into a small deal. I think you would be better off buying a park that’s $1 million with $250,000 down, holding $125,000 for a rainy day, and then pushing that deal to being worth $2 million by pushing rents, cutting costs and filling lots.

But in the end, it all revolves around what your goals are, not mine.

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