Another small park


#1

Ok, another potential MHP deal here in my area.

Asking: $300k (ridiculous for the numbers as you’ll see).
4.5 acres (2 acres empty raw land zoned R1-residential). 2.5 acres of park is zoned as a MHD-Mobile Home District, which here means you can move trailers in and out.
12 lots x $170 LR = $2040. All have trailers, 8 owned by Park Owner.
3 MH’s vacant right now. 1 MH owner-occupied.
8 x 170 = $1360. 2% rule would be $68k for park. Dave Reynolds/Frank Wolfe’s calculation would be $1360 x 60 = $81,600. This is basically a 10% cap rate.
Trailers rent from $150-350/month.
Taxes: $900/yr
Water:$328/mo
Trash:$100/mo

The 2 acres that sits behind the park is a tough part of this. The owner tried to re-zone it to MHD like the front part, which would be great, but lots of push-back from surrounding neighbors and city would then require paved streets, water-hydrants, etc. So, to me it basically has Nil value in the purchase except for maybe what rural land goes for which is about $2k/acre, so $4,000 maybe. It could be potential land to use for some added amenities to the MHP, but I don’t know what those might be yet.

Any thoughts? Need more info?


#2

Steve,
You are right. This guy is way out of line on price. I would send him and offer pending due diligence. You may be the only person interested in his property in the U.S. so he might come back to you. Ignore the trailer rents for pricing the park. (Look at the rents separately for income/expense (typically 50-60% expense on trailers until you get them landlord-friendly)).

So you have 9 paying lots (8 park owned and 1 O/O), 3 non-paying (vacant homes).

9 paying lot rents X 170 = 1530 X 60= 91,800

3 Vacant homes worth ? $2K? ea. Remember the cost of moving and replacement is high. But still each may only be worth $500 or negative $1500 to junk them.

8 other Park-owned homes. Worth $2K ea? What would you sell these for on O/F then divide by 3 or 4 for wholesale price.

extra land = 0 or negative value. You will have to maintain and Pay taxes on it unless you create a right of way through your park and sell to a house builder or neighbor(s)

So we have

value of lots 91,800
3 vacants 6,000?
8 occupieds 16,000?
extra land 0
max price 113,800

You are not buying a beautiful house for $113,800, you are buying an income stream with all its lipstick and pimples.

Steve


#3

Very helpful and confirming for my suspicions on this one Dr B. Thanks so much.

I definitely think this one has some good long-term, upside to it over my other posting. The location is a little better for this one, the park is in much better shape, the zoning is right for moving in & out and I believe the seller is flexible and also wanting out.

He actually has one older home for sale that I am going to look at separately possibly to do a LD on first just to get my feet wet. I believe in baptism, but in this case and economy I might prefer “sprinkling” instead of “immersion”.

Love the “lipsticks and pimples”.

:smiley:


#4

One thing I forgot to mention is that I have last 3 yrs of Sch E’s from this owner. His total rents have increased 9-11% each year. He has a NOI before (IBIDTA) of $15,500. Repairs are $3178, interest is $9866. Don’t know what his payoff is at the bank yet.

This is all from him being a landlord too with his park-owned 8 units. Gross rents were $33,190, so his repairs were roughly 10% last year. That actually seems low to me, but maybe that’s an indication of the shape of the mobiles.

It appears to me that this owner basically is just living in his own unit for free. With his expenses and debt service, there’s no way that he’s getting any positive cash flow from this deal.

If it could be converted to lot rents only, utilities paid by tenants, and LD the mobiles, you could immediately add back in about $10k annually. Bump rents to $190 adds an extra $2880 income.


#5

Just FYI…

My goals as a wholesaler/investor are to shoot for 12-16% cap rates. I prefer to see NOI return my initial purchase in 7 years on average. This is not just for me, but for other investors that I am wholesaling to.

Thanks.


#6

Major bummer for LD’s

Uughh! Just read in my city’s zoning ordinances… “Only resident owners may offer homes for sale in the development.”

Boy, talk about being unfriendly to MHP’s and investors. Guess these would all have to continue to be rentals then.