Which deal is best?

what are your thoughts on the below 2?

8 unit park near Maiden: asking $275k
ARV @Market Rent: $390k
Gross Rents (Annual): $42,600 current ($61,200 market)
Prop Summary: 2 pads, 6 park owned homes. All fully occupied on mtm leases, well & septic
Plan for Rent: Current owner started gradual rent increases Jan 1, 2022; could likely increase to nearly market rents with little ot no turnover (long term tenants)
Budget for Rehab/Other Expenses: $5-15k. I’d probably allocate this as a small reserve budget, but would plan on making most updates and repairs out of the monthly reserve allocation
Financial Summary: $290k all in, $390k ARV (74%)

23 unit park near Vale: asking $650k
ARV @market rent: $1M
Gross Rents (Annual): $116,400 current ($196,200 market)
Prop Summary: 2 pads, 21 park owned homes. 2 pads + 2 homes vacant, all others on mtm leases, county water & septic
Plan for Rent: Rent could be increased immediately by renting out the 2 vacant lots at $250-300/mo each. 2 additional units need to be renovated and then can be leased out at $650-750/mo each. Additionally, 10 homes are currently renting at $500 or below. Leasing all vacant lots/units + raising minimum rents to $550 increases gross rents by 30%
Budget for Rehab/Other Expenses: Estimate $50k out of pocket. Vacant homes will likely require $5-7k each. Additional small improvements can be made to the park to improve the look and feel of the community, plus an initial reserve balance of $20-30k should be more than sufficient. Over time, as vacancies come up and units are turned the expenses can be paid out of the initial reserve balance as well as the monthly reserve allocation ($2,100/mo)
Financial Summary: $700k all in, $1M ARV (70%)

The ARVs below are based on carrying forward the T12 expense ratio, which I think is quite a bit higher than it will be.

Additionally, on the 8 unit I’m allocating 25% of gross income for property management and reserves (repairs/vacancy/capex), and on the 23 unit I’m allocating 32%. This is probably too high on the 23 unit because the property is managed by one of the residents who gets free rent, so her expense is reflected as lower income.

I’m assuming an 8.5% cap rate on the one near Maiden and 9% on the one near Vale as it’s a little further out. That puts both of them all in (with rehab) right around 70% of the ARV, which is amazing, plus the cash flow is ridiculous.

I wouldn’t touch an 8 unit park unless it was like, 30 minutes from my house or another park I own, city utilities, high lot rents. That one doesn’t have any of those… 23 lots is more in the ballpark in a good market.

If you consider both of these properties for what they really are, brick and mortar rental properties, it would be wiser to invest in conventional rental buildings. The expense ratio long term on mobile homes is considerably higher than conventional buildings due to quality of original construction and property abuse due to quality of tenant base. If you are looking to be a MHC owner don’t invest in POHs. That is contrary to the entire motivation of investing in parks. If you are simply looking to be a landlord a park full of POHs is your worst option.

1 Like