Posted by Myron on July 25, 2006 at 08:26:21:
Anne,
Thanks for the additional information. I am very new at this and learning a lot. My feeble brain is in over load with ideas that have come from this board and the books.
I look forward to meeting you at the boot camp in August.
Mobile Home Park- Is it a Deal? - Posted by Marcus
Posted by Marcus on July 24, 2006 at 20:49:18:
Here’s the current #'s on 30 unit MHP (all single-wides, 1992 and newer) with underground utilities, paved and curbed roads on 4.5 acres in a nice section of town.
24 lot rents @ 170/mo.
5 rented MH’s 435/mo. average
1 lot rent free (maint. man)
Total: $6255 x 12 mos + 75060 ideally
Owner says 1st six months grossed 36K, probably closer to 72k gross for MHP. My proposed changes would be as follows:
Raise lot rents to market of $190/mo., One lot rent changing to rental of $435/ mo. New numbers :
23 lot rents @190/mo
6 rented MH’s 435/mo
1 lot rent free
Total: $6980 x 12 =83,760 ideally. The problem I have is the expenses I have are meager at best. I’ve flipped a lot of houses, had residential rentals, but this would be first experience it the MHP area. The expenses are:
Taxes: 4k year
Security light: 12/mo
Insurance: 100/mo estimate
Garbage Pickup: 122/mo
As owner, I would be responsible for meter centers, and upkeep of private road through park, which is in very good shape. I did Ray Alcorns calculation for cap rate (rate of return, mort. pymt, etc.)and assumed expenses at 20% of projected gross(to include 5% vacancy)even though current owner (someone I have done business with in the past) states expenses are meager. This leaves the following result: 83,760-4,188(vac)-16,752(exp) =62,820 / 10.18% cap rate =617,092 value. I would appreciate any advice, what am I missing, are my expense projections accurate for a mostly lot rent park? The asking price is 475K. Thank you in advance.
Re: Mobile Home Park- Is it a Deal? - Posted by Chris Reuman (Maine)
Posted by Chris Reuman (Maine) on July 29, 2006 at 22:13:18:
Hi Marcus,
My quick and dirty is Lot rent times 50 x # of lots plus the wholesale cost of each home in the park.
$170x50x30=$255,000
$10,000 x 5=$50,000 (the wholesale number is your cost to buy the mh and have it moved and setup, if higher or lower change it)
Total: $305,000
This is my starting point. Since, your guy is not too far off, I would analyze the income and expenses. First of all your seller is not telling you all the expenses: property management of the park and each home, maintenance of the homes and park, septic lines, septic and water public or private and cost for each, advertising, legal fees, and more. Analyze these numbers and see how much is left over for mortgage payment and your profit. Then back into a more exact price. Tell me how it goes.
Best investing, Chris
Re: Mobile Home Park- Is it a Deal? - Posted by Myron
Posted by Myron on July 25, 2006 at 06:59:58:
That does not sound like a deal to me.
If you use the 60/30 rule (see previous messages for explanation).
The price for the producing lot rents would be
29 X 170 X 60 = $295.800.00
The increase lot rent to 190 would give you 34,800 increase on the value of the park. Still short of the asking price.
You state that there are 5 rented mobile homes. I would guess that they are park owned. You would be paying a lot of money for these homes if you use the purchase price stated.
475,000 - 295,800 = 179,200 divide this by 5 and you would be paying $35,840 each for the five trailers.
You did not state if all utilities are metered to each individual lot this would be a good thing to keep your expenses low.
The bottom line I don’t see any upside to this park where you can increase the park’s worth. The only gain is long term equity build up.
This is my very limited view of this deal others with more experience will probably give you better advice than I can.
Re: Mobile Home Park- Is it a Deal? - Posted by Anne_ND
Posted by Anne_ND on July 25, 2006 at 08:13:16:
Myron,
Just a comment on the 60/30 rule- this is actually a quick and dirty guideline generated by Steve Case for a first pass when looking for a turn-around park. It’s not appropriate for a park that’s full or has no upside potential, and lots of reasonable parks will be passed over if you apply this guideline in a strict manner.
I’m working with a MHP broker who told me there wasn’t a park in my state (that he knew of) that would pass that rule- they come about once every few years and you have to be willing to look in a large geographic area.
Your main point is a good one, that the park-owned homes are not as valuable as the seller thinks, and when pointed out in a reasonable manner, may cause the seller to re-think their price.
Anne
Re: Mobile Home Park- Is it a Deal? - Posted by james (CA)
Posted by james (CA) on July 26, 2006 at 18:26:00:
Anne,
So what will be the rule for this type of park if 60/30 is not applicable using cap rate perhaps, just curious?
Thanks