need advice on park! - Posted by Amy Rob (TN)

Posted by Greg Va on February 17, 2001 at 21:05:07:

That sounds like a high price to me. How did you figure the value on the mobiles. They must be almost new to bring that much in value. You can’t base their value by the income approach it will be way to high as to their actual resale value. You mentioned seperate water and electric, are they on septic or sewer lines?
How is the income calculated it seems to me that 11 units at 352 gives you 3872 what about the vacancy rate is that factored in. 350 a month including trailers and lot rent seems low if the mobiles have the value you have stated. Also I don’t see any maintainance cost here and believe me their is a lot of maintainance if all of the units are rentals.Probably somewhere near 50% of the income.You will definitely want to find out if the owner is willing to carryback some financing. How long has it been on the market? How was the selling price calculated? Income or fair market value approach? You can ask the realtor these questions. Most realtors that I have dealt with don’t have a clue about figuring the value on MHP’s. They just say it commercial and figure it by the income approach.I’m fairly new at this also but I purchased a park with the same income you are talking about for just a little more than the value of the mobiles in this situation. Also the fact that all of the units are rentals will lower the value of the park.You may want to check out Ray Alcorn’s Dealmakers guide to MHP’s it has a lot of information that will be very helpful in understanding the value of a park, and what to look for when you are purchasing a park.
Good Luck

need advice on park! - Posted by Amy Rob (TN)

Posted by Amy Rob (TN) on February 17, 2001 at 16:52:42:

Okay, we’re new to this, here is what we found. We need to know if we should pursue this or not. More importantly if there is anyone who might want to be involved in this deal, if it can be negotiated into a good one. (we know little about values and you guys always say to come here for help)

The realtor faxed us these stats:

2 acre mobile home park joins golf course
13 pads,(13 water and 13 electric meters)
Includes 11 mobile homes which are rented out
1 storage unit (1965 stewart)
Looks like value of homes is listed at: 143,521.68

Income $3872 mo
Taxes: 1500 yr
Trash: 180 mo
3 street lights: 45 mo.

40 feet between homes. One vacant hook up.

Asking $320,000. I do not know if he is motivated or will assist with financing. I wanted to ask you where to take it from here.

Lonnie, Ernest, someone…help! :slight_smile:
Thanks!! Amy

Re: need advice on park! - Posted by Ernest Tew

Posted by Ernest Tew on February 19, 2001 at 19:34:08:

Although there is some value (about $3,000) in not having to move and set up mobile homes, Ray and Greg make a lot of good points that I agree with. I have experienced and observed pretty much the same. Mobile home renters just might be the least desirable of all.

If you can’t upgrade a park, the upside profit potential is limited. And, it is nearly impossible to upgrade as long as the homes are being rented.

It may be possible to evict the renters, refurbish the homes, and then sell on terms. However, the economics of it would be in serious doubt.

Also, before buying a park, its a good idea to make sure the lots are large enough to accommodate today’s larger homes. Otherwise, it would be difficult to upgrade without reducing the number of lots that can be rented.

Re: need advice on park! - Posted by ray@lcorn

Posted by ray@lcorn on February 18, 2001 at 19:49:58:


Greg is right about the valuation of the homes. They must be valued separately from the ground. I usually figure the income with market space rent as a place to start. Then I deduct all expenses except the maintenance and insurance on the mobiles. That gives the Net Operating Income of the park itself, to which i can apply an appropriate cap rate (another discussion), and get an idea of value. Valuing the income stream of the mobiles is a little more difficult. I tend to ballpark a rough estimate of their retail value, and use half of that, just as you would buying a home for a Lonnie deal. Add that figure to the value of the park for a total value.

I should add that it is also usual that after using this method to value a park with rental homes, I usually don’t get the park bought. The exception is when the homes are fairly late model, at least 14 feet wide, and can be sold in place ala Lonnie deals without hurting the potential of the park. But in most situations, the homes are old, the tenants questionable, and it will cost money to move them both out. The owner of a park with a lot of rental homes needs a cash flow buyer that doesn’t mind owning rental mobile homes. I mind.

Here’s an excerpt from my book “DealMaker’s Guide to Mobile Home Parks” that discusses why…

Rental Homes
As we discussed earlier, one of the differentiating factors of a mobile home park as an investment is the stability of its tenants due to the expense involved in moving a mobile home. Rental homes negate this advantage. Many park owners look at rental homes as being a boost to cash flow, and on the surface that would appear to be true. The homes can often be bought cheaply, or in many cases, a park owner will accept title to a home in payment for past due rents. Collecting a deposit and rent double or triple the amount of space rent seems to be found money, with no harm done to either tenant or owner.

But this is not the case. The home is usually rented to a succession of tenants who have no investment in the community, and no pride of ownership in their homes. As a result, the maintenance on the home remains the responsibility of the owner, and is often neglected. Many rental tenants will not even tell a landlord of minor problems such as leaking toilets or stained carpets for fear of reprisal or loss of deposit. If not totally ignored, the maintenance is done sporadically, and costs run abnormally high due to the transient nature of the tenant base and the relatively low amount of damage that can be sustained by a mobile home without incurring substantial expense to correct. Often the yard and space around the home is ill kept as well. I have seen parks where it was hard to tell which cars ran and which were yard art due to the proliferation of junk around rental homes.

The effect on the community as a whole is just as pronounced. Rather than fostering an atmosphere of neighborhood and shared responsibility for upkeep with the residents, the rental home tenants tend to come and go without developing friendships or ties to the community. Residents who own their homes will resent the transients, and have the impression (rightly so) that the owner of the park doesn’t care about the quality of life for the residents. They will cease to be community minded, and may even start making arrangements to leave. Prospective new home owners exploring parks for location of a newly purchased home will most likely not choose to locate in a community that looks and feels unkempt. The park owner will then begin to meet resistance for increases in space rent. I have very often found that parks with a high percentage of rental homes lag the market in space rent by as much as 25%. The reason is simple. None but the lowest quality tenants will choose to live in substandard conditions if better are available at a comparable price.

Finally, because of the depreciating nature of a rental mobile home, the cash flow from that home must be valued differently than that of the income from space rentals. Allowance must be made for increased maintenance costs, collection losses, and higher vacancies in both spaces and homes. Since the home itself will rarely outlast the spaces, it must be capitalized at a different rate. I will generally not count the rental income from a home in the gross income for the park. I value the homes separately, based on age, condition and size. In the case of badly worn or aged homes, I will actually deduct the cost of moving them out of the park from the final value of the park. In short, there is no scenario in which a rental mobile home is an asset to a mobile home park.

Also be aware that the potential exists for a park to have a rental home problem without the park owning the rental homes. Many times I have seen dozens of homes owned by other investors as rental housing, but shown on the rent roll as a space rental only. The effect on the park is the same regardless of who owns the home. I don’t begrudge investors that make it their business to rent mobile homes. I just don’t allow it in my park. When examining the rent roll, you should be on the lookout for the listing of the same name on multiple spaces. Or the tip-off may be a corporate tenant, such as XYZ, Inc. may be listed as the tenant of space #101. That same corporate name may be listed on the rent roll for multiple lots. If so, then you have probably found the owner of a rental home. Question any tenant listing that does not appear to be normal. Ask the question outright of the owner, “How many of the homes in this park do not belong to the occupant?” Again, the only way to totally insure that you have the facts regarding ownership is to require tenant estoppel letters as a condition to closing.

Hope this helps,