New to MH parks. Is this a typical deal? - Posted by GSP

Posted by dbe on August 31, 2003 at 15:18:59:

Please send me a copy when you get a chance…thx!

New to MH parks. Is this a typical deal? - Posted by GSP

Posted by GSP on August 02, 2003 at 13:27:11:

Visiting my parents I browsed the local ads and found the following park for sale.

Property…32 lot
Land Size…1.94 acres +/-

Sched Income…$145,000
Less Vac/Coll.$ 22,000 15%

Oper Expenses
Prop. Mgmt…$ 0
R.E. Taxes…$ 6,000
Insurance…$ 1,200
Water/Trash…$ 5,500
Maint/Repair…$ 5,000
Electric…$ 17,000
Propane…$ 1,500
Total Oper Exp.$ 36,200 29%

NOI…$ 86,800

25 park owned homes
4 lot rentals
3 vacant lots

I have never thought about MH parks, but I’m open to anything. My first impression was that I could trade my $400 income from a condo for a $3,700 income from the park. We are on our way to take a look, kick the tires, etc. My two big questions are:

1 - How do I value a park? At the time of writing I can’t tell if these are singles, doubles, etc, and I’d wonder about the future best land use, etc. I’ll be reading this site when I get back, but

2 - can 25 homes on 1.24 acres be worth $640k?

To that I add that the debt service on 80% of asking would be about $3400, leaving $3800 income ($86,800/12 = $7200). Seems worth it to me if since the equity I would be using is only bringing in $400 today.

Any advice?

Re: New to MH parks. Is this a typical deal? - Posted by Bert NH

Posted by Bert NH on August 03, 2003 at 10:18:06:

I just last week asked the same question and got some real good answers, 1 of which was from Ray Alcorn. He gave me a very good detailed (long) post of why rental units should be capitalized differently than rental lots. Here’s the link to my original question.

Follow up, still looking for advice, please - Posted by GSP

Posted by GSP on August 02, 2003 at 20:32:08:

Whooooowee! If there is a lower end to the quality of tin out there that has got to be it! I counted about 30 MH looking devices, 75% without foundations, with hitches, and as old and small as I’ve ever seen. Dirty, run down, covered in tree crap, you name it. 6-8 seemed to be clean and maintained even with little yards. One is basically a small RV, and one looks like an old silver AirStream. The grounds are just that, dirt.

Next door is a pleasant MH park, clean and spacious lots, however the other neighbor is a trashed private home. Across the street is a park and lake and there are new homes built nearby and name brand stores going up, breathing life into the community.

If the 25 park owned units and the 4 lot rentals averaged $400 a month, as dirty as the place looked, it would still do $7000+ a month after expenses, servicing a $3,400 loan. The assets can’t possibly be worth more than $30k. All I can think of is that he is selling the income potential.

Knowing what you know about the dynamics of a run down park, is this a diamond in the rough, or a money pit? What would it take to clean the place up? Maybe creating 20 lots and landleasing them and selling doubles? That takes care of the taxes and maint expenses. Any advice? I welcome phone calls and email chats. Thanks all!

Re: Follow up, still looking for advice, please - Posted by Ernest Tew

Posted by Ernest Tew on August 06, 2003 at 05:29:54:

Often, when a park owner or listing broker provides income and expense figures to a prospective buyer, they neglect to provide all the expenses. The thing they leave out most often is an allowance for management and maintenance when it has been provided by the owner.

But, when buying rental property the investor should be reasonably paid for the work they do and still receive an attractive return on the dollars they risk.

I have an Income Analysis form that I use for evaluating mobile home parks. It lists just about every expense you would encounter, along with an explanation for each item. Anyone who would like to receive a copy of it could send me an email.

However, I will be out of town between August 7 and August 15.

Re: Follow up, still looking for advice, please - Posted by Joe C. (AR)

Posted by Joe C. (AR) on August 03, 2003 at 01:21:08:

There are a number of factors to consider regarding the valuation of a MHP. LOCATION is always a major factor. Some locations may support a $640k asking price for what you describe, but not many. The MOST cost effective way to determine the value is to get Ray Alcorns course about buying and operating a MHP, available from this site. I bought the course years after acquiring my MHP, and find it to be an excellent resource to this day. Ernest Tew’s course is also excellent but Ray’s course is more in depth as far as evaluation/acquisition.

The basic answer to your question is that the “lot” rental income is separated from the housing rental income.
For example, 32 lots x $175/mo x 12 months minus ALL annual operating expenses and vacancy allowances. A management fee should be included even if you will manage it yourself. …equals NOI

Multiply the NOI by some number (usually 6-12, but the lower the better), you decide what return is acceptable. This number determines the number of years it takes to get all your money back and hence the return rate on your investment. …equals income stream valuation

The rental homes should be evaluated individually on a condition/life expectancy basis, from what you describe $0-$2000 ea. These individual valuations are added to the income stream valuation. Next, subtract any deferred park maintenance issues. …equals MHP w/rental homes valuation.

This is very rough and basic. Certainly explained in more detail in Ray’s course. The most important point going in is don’t get suckered into paying long term for an income stream with a short term life expectancy (old mobile homes).

Joe C. (AR)