Posted by Chuck on September 03, 2003 at 11:34:51:
ATTN: Experienced MHP Owners - Posted by Sonya W.
Posted by Sonya W. on September 02, 2003 at 20:57:13:
I have found a small MHP close to where I live and am ready to make an offer. I am wandering if I should just use a standard RE contract or if someone has one particularly tailored to mobile home parks? Any help would be appreciated.
Re: ATTN: Experienced MHP Owners - Posted by Chris
Posted by Chris on September 03, 2003 at 11:17:12:
If you are not working with an agent, make sure you (A)get the deposits at closing - MAKE SURE this is in writing prior, and(B)check their tax returns for the water bill if metered seperately- this could be your most expensive cost other than the loan amount. Are the homes electric metered seperately? Most in my area are.
Re: ATTN: Experienced MHP Owners - Posted by Greg Meade
Posted by Greg Meade on September 03, 2003 at 10:44:51:
congrats on your decision. I’ve owned a few parks and I will never buy or sell another without re-reading this link. It is probably the very best and well written analyses i have ever read. I printed this text and carry it in my briefcase.
just hilite the entire link and copy with paste to address bar. Wish you the best.
Re: ATTN: Experienced MHP Owners - Posted by Bert NH
Posted by Bert NH on September 03, 2003 at 08:49:34:
Sonya, I’ve never seen a specialized form for the sale of a MHP. Thats not to say one doesn’t exist. I think you’d be fine using the regular form. Just make sure you write in all of your contingiencies.
Just Some Suggestions - Posted by Tony-VA/NC
Posted by Tony-VA/NC on September 02, 2003 at 21:19:47:
I only respond to this question because it does not center around mobile home park owners but rather the buying process. While I do own a small park, I do not expect my limited ownership time to rate me an “experienced MHP owner.”
On to the questions.
Is the park seller represented by a Real Estate Broker?
If the seller is, is or is not represented, I suggest you consider using a Letter of Intent to purchase instead of a contract at this stage. The letter is non-binding but in essence outlines what you are prepared to offer.
I liken this to getting a seller to raise their hand in a crowd to signify they may be interested in what you have to offer.
The letter allows you a bit more freedom, time etc. to begin the due diligence process without putting yourself on the hook.
For example, most sellers will not simply release due diligence information (tax returns etc.) unless the deal is truly in the works. The letter of intent may very well be what you need to get to the information without having to make a formal offer (that may be over priced).
The root of the matter for you should be your understanding of how to analyze the park and determine of what value it is to you (not to the seller, the agent, a bank or worse yet…an appraiser). What amount of profit from cash flow will make this deal work for you? What amount of reward justifies your efforts? What price (or terms) would be your absolute highest? Once you have that figure (based upon the real numbers of the park) then offer less (or better terms) and negotiate no further than your max price (or terms).
Hope I didn’t make that sound more difficult than it is.
Re: Just Some Suggestions - Posted by Chuck
Posted by Chuck on September 02, 2003 at 22:51:02:
What your trying to describe is called “performance indexing”… a very complicated reverse calculation of the financials to arrive at a purchase price that allows for financial profit (via IRR), rather than CAP rate/debt service ratio.
PI reports run about $100 per property.
IRR - Posted by Benny
Posted by Benny on September 03, 2003 at 09:40:08:
I found free software some time ago that does the IRR calculatios. It’s called “Investment Property Analyzer, vers. 2.15”. I can’t remember where I got it, but if I do I will post that later. It works in Excel and comes with an example using a 12-unit apartment building, but can be used for a MH park if you just consider each MH an apartment.
Re: Just Some Suggestions - Posted by Tony-VA/NC
Posted by Tony-VA/NC on September 03, 2003 at 07:15:18:
On the contrary, I find it quite simple and I don’t pay anyone to do this for me. Value is in the eye of the investor. For the most part we are talking addition and subtraction leaving us with Gross Income. From there I can decide how much I want to run this property. The balance is the debt service Max figure. I don’t believe this is complicated at all.
Figuring monthly payments is the only high math involved and anyone familiar with the financial calculator (computed just like Lonnie payments) can run the numbers in seconds.
CAP Rates are most often used by bankers. I will compute one so I know going into the bank what they are likely to value the property at vs what I contracted to buy it for.
I am not entirely sold on using CAP rates solely as my means of determing value. Minor errors or false reportings in income and expense figures can make huge pricing errors.
Certainly the CAP rate could also be used to give a MAX price figure and offers could be made lower and negotiated to that price but if that price has been overstated by the Division of a %, the investor is in trouble.
For the most part, I can ball park the price and terms while driving through a park in my area, based upon my understanding of what the units should rent for in “As Is condition.” A few phone calls to the utilities can fill in the majority of the expenses. From this I can formulate my offer contigent upon the true numbers and further due diligence.
I value the property as a net income stream. That net income can be affected by owner financing terms, lender rates etc. That property may be more valuable to me if I can get the owner to carry favorable monthly payments that provide me with the cash flow I need based upon the effort to run the park and the out of pocket cash.
Re: IRR - Posted by Chuck
Posted by Chuck on September 03, 2003 at 11:21:42:
The software your talking about requires inputing a known purchase price, all it’s calculations are based on that figure.
The method I’m speaking of uses a pre-determined yield to derive at a purchase price that will produce that yield.
It’s kind of like calculating a lonnie-deal in reverse… you determine what figure/percentage of return you want to make on the item, and then use that number to determine the purchase price that will produce it.