I need advise on MHP for sale.

Real Estate Investing Real Estate Law
1

Hello, I just got back from looking at a MHP that has all parked owned homes. The Park is very clean and walking distance to a good elementary school. Also not far from the interstate, shopping, and a Industrial Park.

The Run Down: The park has a total of 21 lots. The lands is around 3 acres. The sewer system is 10 years old, and it is all gravity fed, it has manhole covers in the street also, for maintenance if necessary. All lots are metered separately. (water & electric) The electric lines are all overhead, not underground. The oldest MH is a 1992. The street is graveled and needs some work. I went in 4 of the homes, 3 were really nice ready to be rented. The 4th was packed full of crap, but very fixable. The owner said there was only one other home that need to be rehabbed. There are 17 park owned homes. There were 19 but the owner sold 2 MH and they are being moved. So these leaves 4 extra lots.

8 Units - 3bed 2bath homes & lots rented @ 450/month
9 Units - 2bed 1bath homes & lots rented @ 350/month

Last year the owner only owned 11 of the homes, he just inherited 8 homes this year (His brother passed away) and sold 2 two of those homes this year. Leaving the total at 17 park owned homes. Here’s what the owners Schedule E looks like. Remember this is just on 11 homes for last year.

Gross Income - 40,650

Advertising - 1,073
clean&maint. - 2,275
Insurance - 3,313
Repairs - 272
Taxes - 1,600
Utilities - 1,400

Total Overhead - 9,028

Total Net - 31,622

The repairs just don’t add up, I am concerned about the overhead not being right. I think it is a lot more than that in reality. But, these numbers are from his Schedule E. He made a copy for me to bring home.

Here are some other points that you need to know. There’s room to add 4 more lots on top of the 4 that aren’t rented. Of course all utilities need to be connected to the main infrastructure. So a total of 25 lots could be the potential for this park. The owner also owns the land around the park that could be purchased for further development, the sewer system in the original park is already designed to handle the future development. To what extent, I don’t know at this point.

The owner is retiring and wanting to cash out, 100% owner financing is out of the question he says. I don’t even think the owner would finance any of it. He just wants out. He said he was over it.

In the past I managed large construction crews and outside contractors, so I think I could manage the property with no problem.
I think this is a great opportunity, but please I welcome everyone’s advice.

Questions I have:

What is it worth?
Is it worth me driving 110 miles round trip to the park?
Or should I move closer to the park?
What other ways to get financing using OPM?
Is Bank lending a Option with this property?
What are you see that I’m not? Good or BAD
Can the property support itself, and make a profit each month to support the upgrades to the roads, etc?

A little about me. As you can see my user name is “up2me” I am a very self motivated person. But, I have always worked for the other “Man” until two years ago. I started my own business, and realized that too is working for the “Customer” . I was still Working for the Dollar, instead of the Dollar Working for me. I want to Thank Lonnie Scruggs for making the light bulb come on. I know it will change my life forever. Full Speed Ahead!

2

A schedule E can be faked. But it could be due to his brother’s ownership of the bad ones.

3

Up2Me,

  1. It is great to find out what the seller wants. Just make a list and remember the wants are rarely all delivered. Most of the time the wants will change once the seller starts to face reality.

  2. Reverse the risk. If you do not believe the numbers then agree a price that will be paid over time and/or a number that varies based on how things turn out. In effect, make the seller a ‘partner’ for a limited amount of time. If the property performs they get their price. If there are extra costs or other surprises, they get less. Similar to an earn-out when a company is sold and the owners are paid to stay a while with the amount varying based on performance.

  3. Assume for a minute that the only way the deal will happen is you pay all cash at close. If you were to buy the place for a dollar you would be fine taking the risk I expect. In other words, there is a price that is low enough for you to move forward even if you know there will be surprises when the ink dries. I am not saying you should over pay. I am saying that the seller has a choice.

You offer a really low price that works for you no matter what happens plus you offer a price that is based on terms or conditions. The seller gets to pick. In some ways you would be calling the seller’s bluff. Just how much do they believe their own numbers vs. just how really bad they want to walk away with cash and no strings.

Unless there is a line of buyers waiting to pick up the property from the seller, I would be in no rush. Let the seller stew with your options. Be polite and professional. Show the seller that you do want to buy and you are not a naive buyer so details matter. Present two offers, either of which you would be entirely happen to agree to once the seller changes.

4

Bad Ones

[QUOTE=Tarheel T;886357]A schedule E can be faked. But it could be due to his brother’s ownership of the bad ones.[/QUOTE]

Hello Tarheel T, What do you mean by the BAD ones?

5

Thanks

John, thanks for the reply you have made me look at things a little different. I will be putting different scenarios together, that I would be happy with. Then if I do offer different options, that may really show what the true colors are. Thanks again

6

just that maybe the repairs were low because the ones that were requiring the normal amount of repairs were owned at the time by the brother. i may have read your post wrong so just disregard my “bad” comment.

7

Excellent reply John.

Up2me,
The owner reported a gross of $40,650. Divided by 11 homes and by 12 months you get $303.03/ mo/home. If he rents for $350 and $450/mo. he had a fair number of vacancies last yr. to get such a low gross/mo/home. Or he under-reported income.

Now:
8 Units - 3bed 2bath homes & lots rented @ 450/month
9 Units - 2bed 1bath homes & lots rented @ 350/month
Ignore the “value” of the 4 extra lots and extra land. All that is POTENTIAL based on what YOU do with it and YOUR money not his. By recently selling off 2 homes, he brought those two lots’ income to ZERO!

= $6750/mo. gross (assuming you QUICKLY rehab the one “full of crap” and the “only one other home that need to be rehabbed”)

minus 5% vacancy and 5% delinquency
= $6075/mo. gross

Rented mobile home expenses run similar to other rental unit expenses, 50%.

= $3037/mo. net

Assuming you would like to clear $1000/mo for all this management and work and future upgrades, that leaves $2027/mo. for the mortgage payment.

$2027 pymt at 10% for 20 yrs = $210,047.10 you can mortgage the park. divide by 80% = 262,500 Price for park Your 20% down payment. = $52,500.

If you don’t have that kind of down payment you have to rework the numbers with your down payment amt. Owners always want 100% out but that is rarely possible. As John said, make several offer options.

Steve

8

Thanks Steve

Thank you for taking the time to run the numbers and putting a scenario together. This really helps me see what other investor see in this deal.

I spoke with the owner again and I asked him if he had came up with a asking price for the park. So, here it is.

Gross for last year $40,650 / 11 units = $3695 per/month
$3695 x 17 total units now = $62,815 Gross per Year with the 17 Units

Net for last year $31,622 / 11 units = $2874 per/month
$2874 x 17 total units now = $48,858 Net per Year with the 17 Units

So he takes the $48,858 x 10 = $488,580 is his asking price.

What is your take on this asking price?

I have putting different scenarios together trying to make sense of all this.
But I’m not the seasoned investor, that has put 100’s of creative deals together. Can some of you recommend some books on creative ways to make these deals come together. I also don’t want to force the issue because if the deal isn’t there and it doesn’t make sense, its time to move on to the next one.

Thanks everyone for your time and input! up2me

9

Up2me,

I’d say he can tell you are a newbie and is trying to take you for a ride to the tune of a half million dollars.

Fortunately, your mind and gut feeling are telling you that something is off.

It would be great to own a moneymaking park but this isn’t it. Let him sit on it another year or two. Maybe he will get real or maybe he will find the greater fool.

Steve

10

Steve thanks again, I will let him sit on this. I was a great learning experience also, but I will keep in contact with him. He is very motivated so time will change everything. Thanks again for everyone’s time and input. Now off to empowering myself with more knowledge. Up2me