Re: Need Help Evaluating this MHP - Long - Posted by ray@lcorn
Posted by ray@lcorn on October 23, 2000 at 10:06:04:
Irwin,
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:
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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.
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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.
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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.
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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.
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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.
- 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.
- 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.
ray