Seeking MHP Financing - Posted by Dave(WNC)

Real Estate Investing Mobile Homes & Mobile Home Parks
1

Posted by Ben on February 24, 2002 at 09:47:44:

Hi Bob

Are you saying that your expenses are 40% of gross? Is that typical for the industry?

thanks

2

Seeking MHP Financing - Posted by Dave(WNC)

Posted by Dave(WNC) on February 23, 2002 at 18:20:23:

Hi All,

I am seeking financing and assistance structuring this MHP deal. Any assistance is greatly appreciated. I will be posting this on the RE Financing board as well. Thanks in advance.

Here are the particulars:

  1. Property - 16 space MHP, Fully occupied, 11 park-owned rentals, all excellent condition, 5 rented lots
  2. Income - $76,440/year or Average $398.13 per space
  3. Outstanding Leins - None
  4. Total Acreage - 4.98
  5. Used Acreage - Approx. 3.5
  6. Expansion Acreage - unknown
  7. Expansion Spaces - Possibly 3 more on parcel.
  8. Upside - Additional 3 spaces, Owner Certification for Water Tests for savings of $130 per year, 1 Rental unit $100 under-valued (can be increased to match others, all spaces at or above market rate), Near 0% vacancy
  9. Selling Price - $475,000
  10. Down Payment - 5% Buyer willing to use about $25,000 cash.
  11. Seller Carry-back - None (Seller wants all cash - Non-negotiable)
  12. FMV - Unknown - Cap Rate is 14.28% at full price ($76,440 Gross, $8,611 Annual Expense, $67,829 NOI)
  13. Condition of the Property - Excellent
  14. Buyer’s FICO - 670 (Secondary investor possible with 740 FICO)
  15. Balloon - 5 years
  16. Closing Costs/Escrow - Negotiable
  17. Realtor’s Commision - FSBO sale
  18. Sales Market - MHP market extremely tight. Seller’s phone ringing off the wall after a week with many serious buyers looking/visiting to buy. Aggressive offer is necessary quickly.

Dave

3

Re: Seeking MHP Financing - Posted by Tom (WA)

Posted by Tom (WA) on February 24, 2002 at 12:34:21:

Dave,

You do not include the mobile home income because these assets will decrease in value, not increase in value like the ground (spaces) will and they may not last for the life of most loans. But, certainly they have some value.

Calculate the value of the park and the value of the homes separately. Figure the park value based on the income for space rents less a reasonable figure for expenses. For example, if the spaces rent for $185 (times 16, times 12 months) the gross income would be $35,520. If you figure reasonable expenses at 35 to 40% you net perhaps $20,000. (I note your figures didn’t include a management fee.) You will need to decide how much $20,000 income is worth to you. If it is an older park, 10% should be the minimum return you want on your investment which would make the park worth $200,000.

Now, calculate the value of the homes. This site is full of examples of prices paid for homes. I don’t know the age, condition, etc. of the homes in this particular park, but you need to understand that homes can be bought cheaply.

The bottom line is that it seems way overpriced to me. You do not have a motivated seller. Wait until he becomes motivated, you never want something so badly that you pay too much, you’ll regret it for many, many years.

Tom

4

Re: Seeking MHP Financing - Posted by lyal

Posted by lyal on February 23, 2002 at 19:46:38:

Dave,
You need to be objective about this. If you really want to you can tie it up contingent on due diligence but you need to really dig into this. First of all if you buy this based on the income, the consensus is that the income from the rental trailers does NOT count. Also the expenses look really low. You need to see PROOF of everything.
Go to the commercial board and read Ray Alcorn’s article on due diligence on commercial properties and go to the Money Making Ideas section and read the 4 part article by Doug O on Turning Mobile Home Parks into Communities.
All the best, Lyal

5

Re: Seeking MHP Financing - Posted by Chuck (AZ)

Posted by Chuck (AZ) on February 24, 2002 at 14:31:30:

Tom’s post is right on the money… I’ll only add that I recently bought a 9-space, all rentals that I turned into Lonnie-deals, for $139,000.

The seller is not motivated, the park is overpriced, and he’ll be hard pressed to get an all-cash sale… unless a less-informed investor comes along that is.

You have three things on your side… time, opportunity (there will be others/better than this) and the resources on this site… make the most of them.

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Re: Seeking MHP Financing - Posted by Dave(WNC)

Posted by Dave(WNC) on February 23, 2002 at 21:45:15:

Thanks for the response Lyal. I am intrigued by your response that rental income produced from the mobiles are not considered by the bank as appropriate income because they are not considered real estate regardless of long-term rental history. If so, would the remedy be placing the 11 rentals on foundations which is obviously expensive and changes the scope of things quite a bit. Do you believe that banks will consider space-only rent for $185 multiplied by 16 and not consider the 11 spaces rented for approximately $485? If so, could it not be argued that a space rented for $485 with good history just “happens” to be worth $300 more due to the trailer parked above it. If the personal property is not considered as capital worthy of renting, does it then follow that rental car companies can not be valued based on income generated from its fleet of personal property?

Also, I agree the expenses seemed low to me as well at first. I have itemized the current expenses below.

Annual Expenses Itemized Below:
Trash Pickup - $1,476
Electric (Well + 3 Lights) - $760
Sewer 5 Hookups - $1,104
Water Tests - $1,560
Insurance - $1,931
Taxes (Property + 11 Trailers) - $1,502 (County-only tax assessed value at $110,100 account for low annual tax expense)
Park Permit - $150
Estate Fee - $38
Annual Lawn Care (fuel expense) - $90

Thanks again Lyal and I look forward to further discourse.

Cheers,
Dave

7

Re: Seeking MHP Financing - Posted by Bobj

Posted by Bobj on February 24, 2002 at 06:59:42:

I think lyal is probably correct in his thinking. I have a small park with 10 rental homes and my expenses are much higher. There probably needs to be something figured in for vacancy. My expenses run about 40% including vacancy and credit loss. This figure will vary, of course, with the age and condition of the homes.

Good luck

Bobj