Your thoughts on price of park

mobile home university
1

I am looking at purchasing a park. If people would be so kind I’d like to get an idea of your thoughts. As a point of reference I own a small park now (42 spaces).

Its a 60 space MHP. Space rent is $150. It has 26 homes in the park at this time. 11 of those homes are tenant owned (9 occupied, 2 vacant, all paying space rent). 15 homes are park-owned - 3 rented at $270 including space rent, 7 needing various levels of remodel to make them rentable, 5 that need to be moved out or trashed. All homes are late 70’s to mid 80’s models. City sewer and city water. Gravel roads.

Its in a small town of around 4000-5000 people. Not a lot of upside in rent. There are 3 other parks in the town, total of about 60 occupied spaces, space rents ranging from $100-$150 per month.

The park needs a fair amount of cleanup - dirt roads need grading, dead trees cut down and removed, general brush and lawn cleanup, possible water leak in one line (high water bill), trailers need sprucing up on exterior as well.

Monthly numbers: Current rent is around $2500, water bill is $800 which includes park lighting (this is why I believe there is a water leak), taxes $210, insurance $50, manager $165, lawn/snow $140.

What does everybody think at first glance? What kind of value would you place on this park? Or better yet, what would you pay for a park like this? My plan is to clean up park, bring in some decent used trailers (as money permits) to sell on contract to increase revenue, then sell in a few years with the possibility of carrying a portion of the purchase price.

2

From what you have stated, the mental image that I have of this place is of a non-viable business. I would top out my price at the fair market (wholesale) value of the land.

Your infill plan doesn

3

Shawn,

I appreciate your input and insight. I’m always open for input and would welcome more comments from others as well.

If I do some simple math, every trailer I bring in should increase the value of the park around $12000 (150x12x.7x10). Even if I lower the cap rate to 15% it should increase around $8500.

A little more background. 4 total parks in town. Two 30 space parks - one full, one half full. The full park was sold in the last year and the new owner has filled it up by buying up trailers from other parks in town or convincing owners of those trailers to move to his park - not sure of his tactics. The half full park owner doesn’t bring in trailers very often, but when he does they rent easily - he doesn’t seem keen on lonnie deals. One 9 space park full. None of the parks have newer homes in them.

I am under contract at $130k, $60k down and balance at 6%. Even if I added no trailers to the park, my return on $60k would be near 15%. Spending a few buck to clean up the park and fix one water leak (probably save $400 per month) will make the numbers even better.

Does this change your perspective at all? At this time, I am not looking to put more than$100k down payment on any park.

4

Although I do not own a park, I have evaluated several for myself. It is recommended on small parks to evaluate the homes SEPARATELY. Here is how I see it:

60 licensed lots.

city sewer and water (great)

26 homes

11 owner-occupied (9 actually occ, 2 vacant (paying rent!?))

3 of the PO homes bringing in lot rent (included in trailer rent)

14 total lot renters X $150 = $2100/mo. current lot rent gross

I purposely left out the rent you get for the trailers themselves ($120) as they are valued separately in this analysis.

gross rents $2100

-5% delinquencies $1995

-5% vacancies $1895

-stated expenses $1365

Net $ 530

Assuming you are happy to keep the stated $165/mo for mgt fee the $530 would be available to pay a mortgage.

$530 pymt @6% for 240 mos = $73,980 mortgage divided by 80% if you were putting down the normal 20% down payment = $92,472 MAX VALUE of park.

3 Rented PO homes worth $2000 apiece = $6K

7 Un-rented unrehabbed PO homes worth avg $1000 ea. = $7k

5 Junker PO homes worth minus $1000 apiece =(-$5K)

Total value of PO homes = $8K

Retail purchase of this park $92,472 + $8K for homes = $100,472.

Wholesale =$30,141

Don’t be fooled by home rentals as part of the income statement, as you will have to replace or rebuild them soon costing you more $$$.

These numbers are based on making money from the property and have nothing to do with the wholesale value of the land. Please evaluate that too, as Shawn suggested, and compare the numbers. I think you are going to need every bit of that $60K downstroke to turn this thing around.

Even if you put $60K down and owner mortgages $70K @ 6% for 360mos. That is a pymt of $419.69 out of your $530 net, leaving you $110.31 after mortgage which is 2% on your $60K.

I agree with Shawn, it is a total dog at the current numbers.

Steve

5

I think the analyses presented so far are a bit too conservative. Here’s my take:

Max Potential Value: Max value of the park = $585,000. Here’s how I figure: 60 lots (assuming all of them are useable, legal, etc.) x $150 rent (max for your area) = $9,000 max revenue per month, $108,000 per year. Assuming a 35% expense ratio (reasonable in a city water/city sewer park after rehab of existing items, including vacancies), you are looking at a max potential NOI of $70,200 per year. A cap rate of 12% (about right for a small park in the middle of nowhere) gets you to a max price of $585,000, with a per-lot max price of $9,900. If I can buy at $130k, with some of that on terms, I am interested.

Variables:

Empty Lots Empty lots are obviously not worth full retail. Nor are they worth zero, which is essentially Dr. B’s approach. Your upside = $585,000 (or so, more on that in a minute) minus what the park is presently worth based on Dr. B income approach on occupied lots only (I agree that the homes & rents therefrom should = 0 for valuation, but not cash-flow, purposes). $585k (or so) less $130k = $455k of possible upside.

Enough People? How many of those lots can be filled, realistically, if you can put a home on each lot? What will the local market bear? This is a very subjective question. Watch out for native optimism of the entrepreneur when answering. Can you undercut local rents, taking into account lot rent & trailer payment? This is a very important factor. If you cannot get tenants for some lots, even with a well-priced home on the lot, then such a lot is functionally worth zero to you. Think this one through carefully.

Enough Capital: Do you have access to enough capital to fill lots with Lonnie Deals? I own parks very similar to yours. I am happy with them. My biggest issue: Having the money to buy the homes. Between access to investor money at @ 8% and my own respectable income, I can fill the parks in about 3 years. In hindsight, I’d have arranged to have all or most of the money upfront for a quicker in-fill. Given the prices I charge ($200 lot rent, $250/m for home over 6 years on 3BR 199x), I do not have much problem filling lots once a home is on it. This sounds squishy on your part and would present problems, especially if unanticipated expenses were to arise (and they always do). Also, can you get enough homes at good prices?

Rehab: Sounds like the park needs work now. You need to get a strong handle on it, and a plan for how you would fund. Make sure to work in a reserve

6

John,

I appreciate your thought-out input. I agree the other comments may be a bit too conservative. However, it doesn’t mean I won’t heed their caution.

I understand and live most of your comments about filling the parks and dealing with tenants. The other park I own has 41 spaces. When I purchased it there were 8 vacant spaces and it was pretty run down. The previous owner had it 5 years and the tenants wore him out to the point he stopped trying to improve the park. In the first 2 years I cleaned the park, painted, skirted, and remodeled a few trailers, filled the empty spaces, and added water meters. Monthly rent roll has increased from $7800 upon purchase to nearly $14000 at this time. With the increased rent roll I can afford to have a tenant as acting maintenance manager. I don’t say this to toot my own horn, but rather to point out that I don’t mind getting work done. There are times I wonder why the heck I am dealing with all of the tenant issues, but at the end of the day the income makes it worthwhile.

Though its a small town I do truly believe if I bring in the trailers there will be people wanting them. Maybe I won’t be able to sell all of them on Lonnie deals and will need to rent a few. I can deal with that.

The other thing I keep going back to is that its unlikely to purchase a park of this size (full or empty) for this price, and especially only putting $60k down (I am going to try to renegotiate a lower down payment as suggested). A bank would never consider this in light of today’s financing market. If I thought I could find a park with good upside and of this size (minimum) that I could buy with $60-$100k down I would do it for certain. If anybody knows of one let me know.

I appreciate everybody’s comments and of course welcome more. Even when you think you know a lot, you can always learn more from other’s perspectives.

Ken

7

I would like to dig into this topic some more because I believe that properties such as you have described are available, it just seems to me that sometimes the local market is saying

8

60/30 Rule- 12 Cap

Avg Month

Lot RentX Occupied LotsValue

150 X 60 = 9000 X14=$126,000

150X30=4500X46=$207,000

Using the 12 cap rule I get a value of $333,000.

Most of the properties can not get close to the above rule and I don

9

Mike,

As our math teachers often said, “Please show your work.” Everyone has their own way of analyzing a problem. There is no right or wrong way. I think it would be instructive for all of us to see your way.

Steve

10

Thank you everyone for the responses. Again, I appreciate all of the input and would certainly like to see more.

It seems clear to me people either love this deal or hate this deal. I have my reasons why people feel differently about the park, but I find it very interesting there is no middle ground. Its either the best thing they’ve seen or not a feasible business. To be clear, this is not a fictitious scenario, rather a true park I am looking to purchase. That’s the reason I am looking for as many thoughts as possible.

The other thing I find interesting is a couple of the positive posts seem to be missing now. Is it possible for a poster to later delete his post? I’m a bit boggled by that.

11

Posters can edit their own previous post.

12

I was one of the ones that got excited about it at first until Dr. B challenged me to show my math and edited my post above.

Mike

13

Shame we are not discussing this one more. It is quite normal to have different criteria or styles on investment. I watch my clients buy things I or other clients view as dogs…and then I watch them make a bunch of money. And vice-versa. Different folks can make different things work, where someone else could never make the same deal work…and vice-versa. Figuring out how others do things is always useful, even if one does not ultimately choose to take the same path.

Post Edited (04-27-10 10:05)

14

Mike,

I’m glad you got back on this thread.

I am curious if you removed your post because after further analysis the numbers weren’t as good as you indicated or it was in frustration because of the “challenge”. This is especially true if someone doesn’t agree with us.

I don’t mean to upset anybody or have any ill feelings about peoples posts. I simply am looking to learn more from people. With that being said, there are times I feel as though people are quicker to jump on reasons why things won’t work rather than how things can or will work. Hey, its human nature. I’m new to the thread and this may put me in bad light but that’s not my intention. I am always open to all ideas and essentially, I have real money on the line here that I am trying to ascertain the best use of.

I hope people continue to post why this is a good investment and why this isn’t a good investment. I hope you, Mike, will give some more info or at least post your numbers again so I can review and compare those with in my analysis. Your reaction was the same as my first reaction.

Thanks to all

Ken

15

I said "And just thinking about fighting with all the close by parks for homes to move in being that you need about 40 sounds like a nightmare to me, but that

16

Mike,

Your list is a good one but one word of caution to others is that there is no perfect park and I realize Mike is not suggesting that there is. Sometimes folks get caught up in wanting the perfect deal and paint themselves into a corner. Remember, there is no right or wrong as long as a deal works for you and your skill set.

I argued this many years ago with Ray Alcorn, a good friend and very, very wise investor. Ray was a lifelong park owner and in his retirement stage of his portfolio. I on the other hand was just getting started. Parks that Ray would not roll down the window to look at might have been the same park I would lock the breaks up to see.

For those who have not yet owned a park it is certainly wise to look for the park Mike seeks but remember he may not be in the same stage of his career as you. A park that falls outside those parameters might just be a great money maker for you based upon your needs and skills.

Tony

17

Good words Tony for sure.

When I consider purchasing anything; my first round of selection process goes something like this - is there reason to quickly dismiss this one and move on.

When I read that this MHP had 13 occupied homes out of 60 spaces in a small population area - it seemed unlikely that the local market would ever absorb 47 more houses, I then read about the “as money permits” infill and thought this MHP will only decline as time goes by.

But then Hyre posted and said that this park sounded similar to his - I have seen John’s MHP’s and they are close to full - so yeah these things can work. I have also seen several MHP’s in small towns that don’t turn around- they just get vaccant.

Obviously Hyre had a plan of action with his turn-around MHPs - but would it have worked anywhere else he tried? - or are there factors within a given small town that makes it more or less likely to support such an endeavours?, if so are these factors demographic in nature or opportunity to supplant weak competition?

I am thinking that a 4000 pop town probably has about 1000 dwellings inside the town. 47 new dwellings is a big jump up for a town of this size, Additionally,I have come to realize what a great challenge infill is in any location when there is no top line growth in the number of mobile homes each year.

But there is no denying that Hyre and others have succeeded in spite of the challenges - and I know of several nearly abandoned MHPs - I’m sure the owners are motivated to get shed of.

So, just what are differeces in a “don’t wanter” and a “right things wrong” small town turnaround park?

Post Edited (04-28-10 06:50)