I am new to MHP investing and am unsure of a potential opportunity I have. The opportunity is a MHP that is a mile away from my house. The park is 2 acres and has 12 trailers on it. The park owns the trailers and rents them anywhere from 550 to 650. They are older trailer (70’s and 80’s) that the current owners have been remodeling and fixing up for the last few years. They have currently renovated 11 of the 12 trailers. 1 trailer needs renovations before it is rented and 1 is currently lived in free in exchange for yard upkeep and collecting rent. The park has its own sewerage system and own water well,the electricity is paid by the tenants. annual expenses come close to 16000 which I think I can get to 12000 due to the fact that I will be doing most work myself that they have outsourced. The asking price is 300k, this is the same price the current owners have paid. Is it worth it? What loan options are out there ? 5,10,15,20 year loans? The biggest thing I am concerned about is the asking price seems high for a small, low end trailer park. please advise. PS I know the sellers personally and they are getting rid of it for personal reasons.
No, that is probably not a good deal. You will need to find out what the market lot rents are for the area to truly evaluate this. We’ll assume it’s $250 for illustration sake. That means you have a revenue of $36,000 and expenses of $16,000. That leaves an NOI of $20,000. You should probably also knock a little off of that for Capital Reserves when dealing with private water/sewer. You’ll divide by the CAP rate you’ll need (I need a 12 or better to consider something of this size) Then you will need to add in a very conservative value for the homes. I would likely be at around $150k to $200k on a park like that. This may seem low, but I had a seller conditionally accept an offer today at $225k on a 40 space park that has 28 occupied pads. That deal will involve seller financing with almost nothing down.
I would also like to add that just because you will be doing the work yourself, that doesn’t mean that you need to pay the current owner for the upside. In fact, you would be unwise to do so should you decide you no longer want to do the work.
On the financing side of things, traditional bank financing may be a big challenge. You’ll likely need to go with a local bank in that town. Banks with under a $1b in assets tend to be all over the map on that. You may be told they won’t do it or you may be told they’ll do it at 30yrs fully amortized. You’ll really just have to ask.
Charles, thanks for the advice. Im not sure if you understood the way I wrote it. The owners of the trailer parks own all 12 trailers and do not charge a lot rent. The trailers are rented from 550-650.Say average rent is 600. 600 x12 for the year would be revenue of 86,400 at 100% capacity. Minus the 16000 is 70000 NOI. will this make any difference as for as good/bad deal? also, the park could be expanded to hold more trailers. again, thanks for the help.
Charles understood your question. The value of the park needs to be determined by the lot rent only which is why he used $250 as his example. Then you add in a nominal amount, if any, for the homes. The home values can vary quite a bit but for really old homes you’ll want to give a low value, maybe $1,000 and I’d ask them to throw in the vacant one for free since it will cost you money to rehab it before you can rent it. This business isn’t figured like apartments which is what it sounds like the current owners are trying to do.
First, you need to get the bootcamp home course until you can get to the physical bootcamp.
Second, you’ve received some good advice from above, but let me go a little further, keeping in mind that I’m a veteran of the boot camp and real estate investing, but new to mobile home parks.
Let’s say on a good day those homes have an actual market value of $5,000 - $6,000, which is probably in the ballpark,may be higher or lower, but in the ballpark.
If you cap the rental income from them, you just paid roughly $36,000 for a home that on a good day is worth $5-6,000. You can never cap the rental income from mobile homes!!!
Here is the math @ $550 total rent. Lot rent $250, that leave $300 for the home rent. $300 X 12 X 10 = $36,000. Even more if the rent is $600. I did not deduct for expenses.
Now - realistically, that $300 in home rent will be more like $150 a month after expenses. I do not know what Frank or the more experienced people figure, but I use 50% expenses.
For a better post, look at the post below I recently put up, I think I called it the “best POH posts I could find” or something like that.
Again - I am pretty new to mobile home parks, but have been investing in RE since the mid 80’s and I’ve done well at it.
Doing the math, my value is in range with Charles, I get in the $180,000 value range, and personally I would NOT touch it even at that. It’s too small and with private utilities?
Great advise. To add to that, I just came from a Boot Camp with Frank (which was AMAZING!) and beyond the numbers I learned that this park is dangerous. As all homes owned by the park, what will you do if all the people just get up and leave? You have nothing to hold them. Normally people don’t leave the park because it costs over $5000 to move a MH but in your case they can just get in their car and drive.
You also need to know what’s going on in this area, will you be able to fill the lots?
Did you do a test ad? You say there’s space to fill the lots you can still grow the park if you bring in homes.
I am not sure this is an opportunity to pass, you might be able to buy it at low price, as explained above but you need to understand that the private utilities will keep you busy, especially if you bring in more homes, and you need to understand the expense better and what’s involved.
Frank explained why we as park owners do not want to own homes, you want to rent lots not homes.
You have to go to the upcoming Boot camp!
Run run run. Private utilities with a small park. No way, no how. That alone kills it.
I have a small park for sale, about the same price, more homes, none park-owned, more income, public utilities, and running well. A far better deal. :0)
Present owners either initially overpaid or have sunk far too much money into the POHs. POHs are a liability that in most cases will devalue the business.