Need Help Evaluating this MHP - Long - Posted by Irwin

Posted by Ernest Tew on October 20, 2000 at 06:00:43:

There are too many unknowns and too many questions for me to answer on this forum. If you will call me at (352) 475-1280, I will discuss the park and give you my optinion.

Unless you are experienced and have the time and the desire to develop property, I would not get involved. Developing involves a great deal of expertise, risk, time, and frustrations. And, there are more profitable deals available.

In such a small town, you may find it difficult to fill vacancies or raise rents.

Need Help Evaluating this MHP - Long - Posted by Irwin

Posted by Irwin on October 19, 2000 at 09:56:00:

My partner and I have been looking into an MHP. We know just enough about MHPs to be dangerous, i.e. we’ve only heard about them, but never owned one. We’d like some help from the pros with some of the details, like:

  1. Lagoons: The waste is piped into three successive lagoons on the property. Should we be concerned about this method of sewage disposal? If so, how do you check this out?

  2. What makes a good MHP location? This one is about 4 miles from a nice, growing, but small blue-collar midwestern town of 4,500 people. No major industry there. There is a city of about 200,000 within 20 miles. There are several other MH parks in the area that I’m told are full. It is also 3 miles from a very nice state park with a large fishing lake. The property fronts on a main state road and is 3 mi from an interstate access. Rental property seems to be fairly hard to find in the area.

  3. There are now 32 single wide pads on about 7ac. There is an additional 25ac that has been platted for 118 additional lots. What is the maximum number of single wide pads you can expect to get per acre and still have a nice project? Should some of it be set up for newer double wide homes?

  4. Assuming we can do some of the labor with our own people, (we do rehab and contract work now) what kind of cost per pad are we looking at?

  5. All utilities are separately metered. Trash removal is also paid by the tenants. Owner says his expenses are limited to r/e taxes, insurance, grass mowing and an occasional sewer line clean out. He says he’s netting $3,000 per month from about 25 current occupants paying about $125. lot rent. He doesn’t own any of the MHs himself. We know we could pick up older single wides very cheap and l/o them. Is that the best way to go.
    FOR THE WHOLE 32 ACRES? The owner says he turned down $215k for the 7ac. The owner has other successful small businesses and doesn’t want to work at developing or promoting this one. He’d rather cash out. He’s a recent immigrant, and I think he has trouble dealing with this type of clientele. We wouldn’t. My partner owns and operates a related business in the small town, so hands-on close management is not a problem. We’re also experienced in commercial and residential real estate and construction generally, but not in MHPs.

  6. I suppose I should just ask our banker this question, but how do banks generally view MHPs? Will they ever loan based on projected income? How difficult is it to find private investor/lenders for deals in this area?

  7. What else do we need to know? Sorry, neither of us can make the Atlanta seminar at the end of the month.

Sorry this got so long. Any and all info and advice is appreciated.


Re: Need Help Evaluating this MHP - Long - Posted by ray@lcorn

Posted by ray@lcorn on October 23, 2000 at 10:06:04:


I like the sound of this deal, though without a price its hard to judge if it is in fact a deal. It has the potential of being a very good deal if you can handle the development end. I’ll comment in the same order as your questions:

  1. Lagoons: This method of sewage disposal is among the most maintenance intensive of any method out there. You’ll need to check with the local health department, or whatever agency regulates such things, to make sure the lagoons are properly permitted and have no outstanding violations or scheduled improvements. Maintenance can include periodic draining and dredgeing if the flow is not sufficient to keep it operating properly. Mowing and chemical balance treatments (depending on the type of system) are the two ongoing items that require attention. make sure the fencing around the ponds is secure and in good repair. There is considerable liability if unauthorized persons (read kids) gain access to the lagoon and something untoward happens.

  2. I like the sound of your description of the area. Generally, locations with good transportation access, within commuting distance of major employment centers, close to serveices (shopping, schools, etc.), and with stable or growing populations are preferred.

The information missing is that pertaining to the local market, i.e. dealer sales, apartment vacancies, housing starts. You need this information to project the build out and fill up of the new spaces. Be sure to check the local zoning for compliance on the existing spaces. Take the opportunity to get a copy of the development standards for the new spaces as well.

  1. Generally, quality parks will have no more than six units per acre. For years the standard was seven, but with the size of todays new homes, the spaces have had to increase accordingly. Definitely prepare between 10% -25% of the spaces for doublewides, more if the market will support it. How do you know? From the information needed in #2 above.

  2. Can’t answer this one because there is no information as to the grading required, what type of water system to price, and the development standards under the zoning ordinance. (e.g. paved streets, lighting, recreation areas, etc.) I would advise talking to a local, small, engineering firm to get a handle on what the costs run in your area. Then do a financial projection based on the market info above to see if the numbers make sense.

  3. The present set up is ideal for low intensity management. However, you will have to deduct a management fee for the park wether you pay it or not in order to get to a correct valuation. Allowance must also be made for collection expense, capital reserves, and any deferred maintenance. Does the park collect the water/sewer fees or are they paid to a third party? If there is a master meter, and the park collects the bills, what are the usage patterns? What is the system made of? (galvanized water lines can be a leaking nightmare, and that doesn’t go through space meters.) Are the spaces all properly wired for total electric homes? I’m bothered that the owner only tells you what he won’t take… better for him to price it too high and have something to start with than for you to price it based on anecdotal information. I would want to see the actual operating returns, then normalize those statements with the expenses of how the operation will be run under your ownership. Its a question of what return you want for your risk and effort. Do not pay the current owner for work that you will do. Pay only for the current income stream as evidenced by his records.

Mobile Home Parks are not necessarily complicated, and if you have the experience of other income properties, you will pleasantly surprised at the ease with which you can build value with the property type. The key is to build on the one attribute that parks have over all other property types, which is the intransience of the tenants. When properly developed and managed, tenants often stay in parks for five, ten or even twenty years. The cost of moving the home will almost always outweigh nominal rent increases. For that reason, I would advise using only late model used homes to put in place and sell. I would not L/O. Use the system Lonnie had developed to create owners, not renters. A rental mentality in a MHP erodes the semi-permanent status of the tenants that own their homes.

You have the opportunity to create the very type of property that the large institutional buyers are on the lookout for, and will pay very high valuations to obtain. In a nutshell, they look for clean parks of 150 spaces or larger, separately metered utilities, in self- sustaining communities.

  1. Good banks want to place loans that will be timely paid, period. Property type becomes an issue only when the market does not support the project or the promoter does not have the capacity to perform. From what you have described (full neighboring parks) I would guess that this is an area that could well support the park, and you sound sufficiently experienced to handle the job.

Assuming that then, you need to first develop a relationship with a bank so they know all about you and your experience prior to asking for the loan. That means you must take the time to develop your own paperwork that tells your story. I do it as a business plan. That gives me the opportunity to highlight past accomplishments, financial history, and future plans in the most positive light. They should be happy to make you a construction loan based on pro forma projections for the new spaces providing you have done your homework. That means knowing what it will cost, how soon you can realistically fill the spaces based on the market info, and who will perform the different duties required to make it a succcess.

  1. I’m sorry you can’t make it to Atlanta too. This type of deal is exactly what we will be studying during the park portion of the seminar. (Watch out… here comes a shameless plug!) The course is based on my book, “DealMakers Guide to Mobile Home Parks”, which is also available here through CRE Online. Most of what you need to know is covered, except for the development portion, and there are numerous contacts and resources included to point you in the right direction for detailed guidance in the operation of parks.

I wish you luck in pursuing this project, and please do not hesitate to post further details. There is a wealth of expertise available here on this newsgroup, and I would strongly recommend you take advantage of it.