Small park deal evaluation

Looking at buying a 11 pad MHP there are 3 POH (all in need of repair) and 8 TOH . The rent is $260 which is market
One lady owns 4 of the 8 TOH. Expenses are about 1500/mon (which includes water sewer taxes and insurance asking is 100k Is this a good deal?

Is it city utilities or private.

Looks to be about a 15 cap at about 50% expense which sounds close if all 11 are bringing in lot rent. The lady in your park is in a tough business. I would want to approach her and buy at least 1 or 2 of her mobiles back so she doesn’t hold all the cards.

There are many other due diligence questions with market and location that you will need to answer.

If the area had any future potential and I lived close, I would look closer at it for a first deal. Most people don’t want a landlord with that much power in their park.

Also, any deferred maintenance on a park like this could really hurt you.

Hi @beckyg, with a really small Park like this your expenses should run around 50% of gross income conservatively as you do not get economies of scale with mowing, tree trimming, vacancies and capital expenditures are felt more, etc. Assuming the POH’s aren’t rented since in need of repair, and that this is on all city utilities:

8 paying homes x 260 lot rent x 50% expense ratio x 12 months / 12% capitalization rate (you can adjust depending on market and demand) = $104,000.

@Louvie is right about the deferred capital expenses being a major influencer.

This would be a fine Park to cut your teeth on at the right price, but it’s always going to have a smaller pool of buyers when you want to sell due to # of pads. A lot of people would want a Park like this at 15+ CAP rate to make it worth their while, or you could pull a 10 or 12 CAP in a very hot appreciating rent market.

All the best.

I do not like the POHs but more of a concern is that one tenant pays 50% of your present income assuming the POHs are empty. Either way 4 homes with one owner in a small community like this can be very risky.
Not a deal I would consider unless I got it for a song and was prepared to somehow reduce the one tenants ownership down to one home without buying them myself. I hate having POHs.

I’d also like to point out this using jhutson’s numbers:

NOI: $12,480
Debt Serv: $6,447 (assuming 75LTV, 6%, 20yr)
Cash Flow: $6,033

Monthly Cash Flow: $503

I guess the question is really, is it going to be worth it to you to go through all of that for $500 a month and are there certain fixed expenses or risks that can completely wipe it away. For starters, a plane ticket/hotel can put you in the red so you better live close. Number two, over $1,000 of your monthly income is coming from one person.

Even though this represents a 24% CoC, it might not be worth it what-so-ever depending on your individual circumstances. Also keep in mind that your future buyer will have the same thoughts as I’ve expressed so it will be tough to sell down the road.

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Thanks for all the info
Ok so being that this is our first park I am new to this and have some questions:
what defered maintainance could we incur?

the lady that owns the 4 lives in 2 of them her daughter lives in one and she rents the 4th one
So I don’t think we could get her to off load any of them to us

We live about 10hrs from the park but travel to the area frequently to visit family so would the distance still be a concern?

For a long term play the land is zoned commercial right off a main road with stores close by so we think that maybe it might sale as vacant land in the future ???

We got about 30 calls on our test ads in a week… mainly for a rent to own type deal vs straight lot rent

We are a little concerned but we have been looking for a while for a seller financing deal that we could wet our feet with. But it seems in the 600k or below category the parks all look pretty rough and need a decent amount of time invested. Any thoughts are greatly appreciated

@jhutson how would you modify your formula if a park was paying for water? thanks

It varies by Park depending on # pads and general behavioral usage / waste, but the blended usage per pad is typically anywhere between 50 to 80 dollars per pad when paid by the Park. It should be closer to 30 or 40 after sub-metering and tenants paying.

For a small Park like this the increase in expenses would be quite substantial (e.g. 400 per month for 8 pads @ $ 50 each is 20% alone), but for a 30+ pad park it will be a 5-10% increase in expense ratio and could help with negotiations. On the other hand if the Park has above market rents to offset this then the “free” water may be justified.

Unfortunately it always depends and you have to use judgement to see how this influences your offer.

Becky, did you move forward with putting this MHP under contract? 1/2 of the units being owned by 1 person would cause me some concern. I’m interested to hear your experience. I just started looking at a small park in Ohio with a lot of the units under the same name - which threw up a red flag.