Posted by Daphne Lowe on November 28, 2005 at 11:12:05:
By the time you read this, the week mentioned in your post will have arrived. If you’ve already closed, congratulations! I wish you the best of luck. The rest of this message will be useless to you and I’d advise not reading it. You’re committed, so now focus on how to make the project a success. If you haven’t closed, read on.
Here’s my quick assessment of your numbers:
Gross potential income = 42,000 on seven MHs
Debt service = 30,000
Paying the mortgage will consume 71% of your total income, leaving only 29% to cover all expenses and vacancy factor. The industry rule of thumb operating expense ratio is 40%. With the empty 3 spaces rented, GI increases to 60k and DS goes to 37k, leaving a slightly better 38% for operations. The chance of this MHP cash flowing as you’ve structured it, is marginal. Now if you have other goals, like using it as a land play for redevelopment, that’s a different story. Ditto if you have 225k idling in a bank/retirement account, this park could provide a decent double digit ROI if it’s not encumbered with a mortgage.
If you haven’t closed yet, there are better deals for your money, and I have someone that I can recommend to you. He’s a RE broker out of Atlanta who specializes in MHPs, personally owns several parks and has been doing this for a decade. He was instrumental in helping me acquire my first MHP, a 100+ space turnaround project. If you’re interested, shoot me an email and I’ll get you contact info.
GOTC but make sure you CYA (that is, have cash to cover your actions).
closing on a mobile home park next week, - Posted by Emmett Jordan
Posted by Emmett Jordan on November 25, 2005 at 14:27:09:
I am closing on a mobile home park next week. It is a 10 pad park on an acre of land. It is inside a subdivision with brick houses around it (very unusal spot). The park comes with 7 single wides that are 2000 models, and three empty lots. all seven sinlge wides are rented for $125 a week. the sales price is 225,000. the tenates pay all water and utilites. park provides trash pickup for 120$ a month. I have profit and loss for 3 years. has an 85-90% occupancy rate. any comments on this bieng a good or bad deal? what would you do with the three empty lots?
Re: closing on a mobile home park next week, - Posted by Daphne Lowe
Posted by Daphne Lowe on November 25, 2005 at 20:29:06:
The bottom line is, how much does the park cash flow after debt service and ALL expenses- ad valorem taxes, property taxes, liability insurance, home repairs, park maintenance including grass cutting and snow removal, advertising…
If you’re getting ready to close next week, you should know the answer to this question and those that Nate and Mike brought up, plus a host of others that we haven’t mentioned.
The more money you have to cover your mistakes/knowledge gaps, the less due diligence you need.
Re: closing on a mobile home park next week, - Posted by Nate-WI
Posted by Nate-WI on November 25, 2005 at 15:21:51:
I have no idea if this is a good deal or not. You don’t give us alot of details to this deal. Care to give us some nuts bolts on the deal? Terms? Where is this park? Why was the seller selling? Are the rents correct or under market? You should know what you plan on doing with the three empty lots before you bought this. Good bargaining power as well to get a reduced price.
Re: closing on a mobile home park next week, - Posted by Mike Cheatwood
Posted by Mike Cheatwood on November 25, 2005 at 15:16:53:
Emmett,
Personally I would not like weekly rentals due to the weekly rent collecting management hassle.
You did not tell us much on how the deal is being done such as is it owner financing/bank finacing (& what terms), how much DP you are putting up and how much in the way of cash reserves you will have left to work with to fill the 3 vacant spots (buying repo trailers are the way I have been filling my vacant spots).
Finally, how did the seller say he/she came up with the sales price, has the seller been making money under the current set-up and why are they “really” selling?
Re: closing on a mobile home park next week, - Posted by Emmett Jordan
Posted by Emmett Jordan on November 27, 2005 at 13:33:23:
I do have the answers to the following questions. the park is sellling because the owner (a 65 year old man) died in a car crash. His wife has developed altimerz. it has been managed by a professional manager for two years. it has had a steady income of 3,000 a month. 125 a week is market price. It is located on an acre of land that is 50 yards from a four lane highway, and across the street is a brick house with a 3 car garage. also within 50 yards is a large for dealership bottome line good location. 120 a month goes towards trash service. they usually have 200-500 in repair cost. the trailers are only 4-5 years old and are in good condition. I am getting 100% financing from a local bank on a 2-3 year ballon note with an intrest rate of 8.5%. my monthly pamyments will be 2500 a month. taxes etc. will be 2500 for the entire year. Including trailer taxes. and insurance will be about 2000 for the entire park. all in all there is 1000 left over for taxes insurance, vacancies, and repairs. currenlty all the trailers are rented. In my mind the empty three lots is where the profit is. the hood ups/meters are already in place. that will increase the monthly gross by 1500, with only increasing the payments by 600 or so. What are your thoughts, qoutestions, concerns?
also trailer zoning is “outlawed” in this and surrounding counties. this is north of atlanta ga
By now you have closed this deal. After you get the three empty lots filled with rentals, get the loan refinanced. Find a bank that will do an 80% LTV, prime plus one, for 20 years. That will give you a few hundred more a month.
Also, save some money for repairs. The homes are new now, but in ten years, the expenses will pile up.