The Manufactured Housing Forums

We’re veteran house flippers looking to buy our first park. We’re pretty interested in this deal - but is it really a deal? Here’s the details.

I did a direct mail letter to about 200 park owners. Phone rang off the hook! Got 25 responses in ten days. My first thought…why do so many want to sell??? In any case, so far we’ve narrowed down the leads to this one…

Seller asking $140K

3.4 acres located in a military town. Every park owner I’ve talked to says vacancies are not an issue but turnover can be.
10 units - all separately metered for water/electric. All have individual septics. One of the units is not in the park, but on a rented lot across the street. Main road is not paved but in good condition. No pads or driveways at units. Typical to this area, people drive in the yard to park, so they all have dirt/worn grass parking areas. Despite this, the yards/grass are very nice and we did not see any standing water issues.
There is a additional unit not hooked up that is used for storage. Looks terrible but does serve it’s purpose well.

The current owner has treated the park like a personal housing area for friends and family, so the current numbers aren’t great. Owner lives in one unit, daughter lives in one rent free and several others are vacant for one reason or another. Rents have not been raised in years. Owner seems to rent low to rent quick and to keep the long termers.

Here’s the breakdown… (the /$ under rents indicates what the unit SHOULD be getting if rented)

Lot # Rents Year Size Bed/Ba Condition/Notes

1 vacant/$475 1984 14X70 2/2 uninhabitable. Needs removed.

2 owner/$475 1974 14X70 2/2 good interior/exterior needs work

3 $400 1973 12X60 2/1 fairly new tenants

4 $350 1970 12X60 3/1 Decent exterior. Long term tenant with spotty payment history.

5 $450 1997 14X70 3/2 Best unit in Park. Long term tenant who does work in park.

6 $375 1983 14X60 2/1.5 tenant moving soon. New baby on the way. Spotty payments. Will need work.

7 family/$395 1971 12X70 2/1 decent

8 $450 1983 14X70 3/2 Ugly exterior!

9 vacant/$350 1972 12X50 2/1 needs repairs - s/b less than $350 to fix.

10 vacant/$475 1990 14X70 2/2 Good condition. On rented lot @ $90 month.

In a nutshell, only 5 units are now collecting rents (#3,4, 5, 6, 8), #1 unit needs pulled off and replaced, #9 needs repairs before renting and #10 just needs to be rented. If we purchase, owner wants to stay in #2 for some time and daughter will vacate #7.

If full, at current rental rates, the park should be grossing about $4195 per month ($50340/yr)

The total monthly expenses are $1787 as I’ve attempted to budget them

40 Security Lights
80 Trash
150 Insurance
39 Taxes (Land - $460/yr)
23 Taxes (Units - $268/yr)
400 Lawn Maintenance (this is a WAG. Right now tenants are "supposed" to maintain their own lawns)
125 Legal (.0025 of gross rents/12)
420 Repairs (10% of gross rents/12)
420 Vacancy (10% of gross rents)
90 Lot Rent (#10)
$1787 TOTAL Expenses ($21444/yr)

So here’s what we need help with…

What should we offer for the park?

If I use Dave Reynolds QAD formula before even looking at the park (units-vacancy X lot rent X 70), it looks like this: 9 X $175 X 70 = $110250

Using Chrissy Jackson’s Value formula (I/R=V), I come up with $115584
Put into words, the Value of the community (V) equals the Income (I) divided by the Rate of return (R).
28896/25%= $115584 (thot I’d share those formulas for other newbies like me - though rate of return is another WAG).

I’ve seen other ways to structure an offer but I’m sure I need a better grasp of the value of the units themselves.

But, being the house flipping type, it seems like we’re leaving out a huge expense - removing and replacing one unit.

What would you offer for this park?
What questions do we need to ask about the infrastructure?
What contract contingencies should we include?
**What other questions do we need to ask???**

This "seems like" a good deal but I don’t bank on "seems like". I want the numbers and the facts to talk to me. I’m just not sure of all the questions to ask. Given the facts, I can run the numbers on flip house in minutes…I want to be able to do that with parks, too. Thanks for any and all feedback.

Many people who purchase their first mobile home park investment grind it out, paying for the "privilege" of being in the mobile home park business with every hour of their day, and every ounce of their energy.

And guess what? Many of these mobile home parks do not work as expected - their owners do... And they spend hours and hours spinning their wheels doing the WRONG things, for the WRONG reasons.

Bottom line, if you want to get into the business and not make mistakes that could end up costing you thousands, if not hundreds of thousands of dollars and wasted time and energy, and if you are open and honest about this "reality check" then you do have a chance to free yourself from this trap might be about to dig yourself into.

Now how do you know if you are "trapped" or "will soon be trapped"?

Well, simply check off any of these thoughts that may have crossed your mind from time to time:

"CAN this mobile home park actually make as much money as the owner has reported it shoulld? Is the owner cooking the books?"

"How do I check on the water lines or sewer lines?"

"How do I check on the market?"

"What questions should I ask the seller? The city? The electrician?

"What about all those Park Owned Mobile Homes?"

"Am I missing something?"

"What will I do if (fill in the blank)?

It is all covered it all in The Manual 30 Days of Successful Due Diligence"

The price of the tuition (buying the manual) is small compaired to the risks you will be able to understand and crank the rigt factors into your evaluation of any mh park purchase.

As this is your first park purchase you should also get a full educaiton on investing in this property type. Read

List of 10 Things to Look for or Lookout for When Buying a Mobile Home Park in the Current Economy!


Mobile Home Park Strategies for the U.S. Recession

How to Learn the "Reality" of the Mobile Home Park Business


Financing Options for Mobile Home Park Repair, Re-Development Or Rehabilitation

Here are a few other things to think about:

1. How much will be required to rehab the homes in order to make them ready to be sold?

2. How much will it cost to dispose of the home that needs removed?

3. Is the lot rent $175 per month in that market? Do so rent comps to get the real market rent. This is a big item because if the rents in the market are only $90 per month the park is worth significantly less.

4. Will the seller finance the deal? It may be tough getting financing on a small park with all the rentals - not impossible but tough

5. Make sure the market is good and the base is not supposed to be downsizing or closing. The high turnover is typical for parks with rental mobile homes. I would suggest selling these off to get out of the repair business.

6. If the park is not located close to your home, it may be difficult justifying buying a park that is a long distance away from home.

7. I did not see an expense for water and sewer - is this paid directly to the city?

8. One thing to think about is what is your exit strategy. This makes good assumable owner financing all the more important. Once you fill the homes and sell them off thereby creating a stabilized park, you should figure out what the value of it is then. This will help in coming up with your offering price.

As far as placing a value on the park, you need to figure out what the lot rent will be and then go through each expense item to estimate what it will be once you take over. In addition to that you can place a reasonable value on the homes. Based on what you provided I would estimate the value to be in the range of $65K to $100K. Big difference but I am not sure of the lot rent. If it is $90 then it is closer to $65K and at $175 it is closer to $100K.

Thanks,

Dave Reynolds
MobileHomeParkStore.com

Individual septics can be a real nightmare, both in terms of ongoing maintenance and repair, and you need to find out from the city or county if this will be permissable in the future. 10 sewer taps could easily be a $30,000+ expense. I would agree with Dave Reynolds that you are likely over estimating the value.