Mobile home park opportunity? - Posted by tonyd

Posted by Ernest Tew on April 09, 2002 at 16:42:38:

I would get to know the owners and try to discover their real motive for selling. Then, I would structure an offer that satisfies their needs and preferences, as long as the price and/or terms are attractive to me.

Keep in mind that, in many instances, the price isn’t the most important thing to the owners. However, in the long run, it is very important to the buyer.

Look for opportunities to enhance the income and the value of the property. For exemple, upgrading and raising rents or filling any vacancies with homes that you buy and sell on terms–or net lease with an option to buy).

Mobile home park opportunity? - Posted by tonyd

Posted by tonyd on April 08, 2002 at 16:24:39:

Would like opinions on this potential deal as it was presented to me. Park is located in So. Florida.

44 units plus an apartment all 100% occupied (adult park)

asking price 1.2 million
D.P. required 300k
Owner financing 900k … 20 years @8%

90k debt service
50k expenses (have the proforma)

Gross income 190k (340.00 mo per unit)
expenses 140k

50k return on investment 16%
19k principle buy down first year

69k total first year return or 23%
Plus: park appreciation + tax write off

Park has a laundrumat and pool onsite.

Price seems high per unit. Any thought on a fair valuation?


Re: Mobile home park opportunity? - Posted by Jon

Posted by Jon on April 08, 2002 at 20:14:00:

You show 26% expenses, what’s included in the expenses. Your calculations show an overall cap rate of 4% or $50,000 / 1,200,000 = .04. Gross rent multiplier of 6.32. I think the park is overpriced.

Re: Mobile home park opportunity? - Posted by Ernest Tew

Posted by Ernest Tew on April 09, 2002 at 05:19:58:

As Jon pointed out, the park is overpriced at $26,667 per lot (including one for the apartment). However, we should divide the net operating income (gross income less operating expenses) by the price or value to arrive at the cap rate. It would be incorrect to divide the price by the cash flow.

We have owned and operated nine parks, including an 80 space park in south Florida that rents for $275 per month. We have found that operating expenses average about 40%. Consequently, I question the approximate 27% mentioned in your post.

Owners who manage and maintain their own parks sometimes forget about the value of their time and efforts when attempting to sell. I doubt that they will agree to continue to manage and maintain the property without pay after it is sold?

Whether you will manage and maintain the property yourself or hire someone else to do it, the value of those services should be included as an expense when estimating income and value. That is, you should be paid for services and still have a reasonable return on the money you invest.

Finally, I wouldn’t count on appreciation when paying top dollar for a property.

If the owners are motivated, you should be able to negotiate a better price or better terms. If they are “hung up” on price, you might agree and pay them the same down payment; provided they will accept an interest-free mortgage. Or, you might negotiate a better price by showing them how they can avoid or defer capital gains taxes. For example, enter into a net lease with an option to buy at the same price within five or ten years.

Re: Mobile home park opportunity? - Posted by tonyd

Posted by tonyd on April 09, 2002 at 08:25:00:

thanks, i agree the park is overpriced. Would you recommend this type of investment? I have no problem putting my time into managing the park also and i see a definite benefit of being able to do all the “lonnie” deals i want. It does tie up a lot of cash that may be put to better use elsewhere but for the right priced deal, the LT investement return could make it worth it.
Any comments?