Small Mobile Home Park Gems - Posted by Tony Colella

Real Estate Investing Single-Family Homes
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Posted by Tony Colella on September 05, 2011 at 15:49:36:

The price would be relative based upon not only location but also the investor?s ability to negotiate a better purchase price in comparison to income. I believe we will continue to see lower prices on these parks for the reasons previously mentioned in the other posts.

How fast one can pay off a park would depend upon how well they buy, how well they manage and what they do with the proceeds.

I don?t see how this would differ from a larger portfolio buyer looking at a larger community or a stick built buyer looking at a single-family residence. What they choose to do with Net Income and how they manage the property will vary from one to the next.

I like the small parks because they are reasonable numbers for newer investors to work with and they can be a step to creating equity quicker and moving on to larger investments if one chooses or pay down this one faster as you suggest. Is it for everyone? No. Is it for you? Probably not as you have long ago moved beyond this size park as a target of interest.

Keep in mind that the parks that I am referring to sell for about the price of single-family homes. My first park in Asheville, NC I bought for $135,000 if memory serves. That price was likely far less than the average home cost in Asheville at that time. Many 1920 bungalow rental units were selling for that price in Asheville at that time but they did not have nearly the income and admittedly effort involved. But could you pay down the 10-unit park faster or than the bungalow? You probably could if you so chose.

What if these small parks get suppressed to say $50,000?

Impossible?

Five years ago would many of us thought we could buy stick built rentals for what we can today?

I wouldn?t hesitate that many investors could easily buy these parks for all cash if they so chose. Fewer can do that with the larger parks. One might even look at these small parks as the training ground for larger deals.

I don?t see how this would differ from a larger portfolio buyer looking at a larger community or a stick built buyer looking at a single-family residence. What they choose to do with Net Income and how they manage the property will vary from one to the next.

I like the small parks because they are reasonable numbers for newer investors to work with and they can be a step to creating equity quicker and moving on to larger investments if one chooses or pay down this one faster as you suggest.

The parks that I am referring to sell for about the price of single-family homes. My first park in Asheville, NC cost I bought for $135,000 if memory serves. That price was likely far less than the average home cost in Asheville at that time. Many 1920 bungalo rental units were selling for that price in Asheville at that time but they did not have nearly the income and admittedly effort involved. But could you pay down the 10 unit park faster or than the bungalo? You probably could if you so chose.

What if these small parks get suppressed to say $50,000?

Impossible?

Five years ago would many of us thought we could buy stick built rentals for what we can today?

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Small Mobile Home Park Gems - Posted by Tony Colella

Posted by Tony Colella on September 05, 2011 at 10:09:31:

As the prices of real estate continue to decline in many areas we find many investors sitting in the wings waiting to capture cash flow at the bottom of the market. For several years we have heard of the impending commercial credit collapse coming in 2012 due to so many ballooning commercial mortgages. Admittedly I have not followed this closely to see what mitigation has been attempted but if it is anything like the single family housing fix I don?t expect much.

As more and more commercial properties are foreclosed the prices should logically decline and I have seen this already in the small mobile home parks. These ?mom and pop? style parks are most likely the kind you think of when you envision a ?trailer? park. Typically they have gravel roads and a handful of units, maybe 10 or less in my area.

So many of these are popping up for sale at a time when the larger parks are beginning to flood the market at foreclosure prices that the smaller parks may become the overlooked gem of the income property market.

Many of these parks are sold with owner financing. Those that were over leveraged and have been foreclosed upon will go for rock bottom cash prices.

I believe these properties are ripe for the picking for newer investors seeking to make the move into the (semi) commercial market. Because these properties are evaluated based upon income (typically Net Income) a hardworking investor can make improvements and cut expenses that can increase value far faster than the other, smaller investments I have seen.

Yes, it may take some time for the foreclosed properties to exit the market and prices to return to an upward increase but think about it. You will need that time anyways to increase income and reduce expenses as you fix the park up. You can afford to buy and hold a good cash flow park like this bought at rock bottom pricing. I don?t like the buy and hold approach on all asset classes but this is one that I see that makes a lot of sense to me.

I am not encouraging anyone to just run out and buy the first ?trailer park? they find. Due diligence is a must but I believe that by focusing your sites on this niche you will discover parks you have passed for years without notice.

It is time to farm these properties to uncover the hidden gem.

Tony Colella

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Re: Small Mobile Home Park Gems - Posted by shawn sisco

Posted by shawn sisco on September 05, 2011 at 13:05:57:

While I really think the mom and pop, hands on business
model with regards to small MHP has more to offer a
small investor than a big debt laden apartment or SFR
operation. The foreclosed mop and pop trailer park that
I see typically have no reliable income and tons of
surprises with respect to differed maintenance, so that
by the time you make all the deductions in value to
compensate for the condition a deal can’t struck
between buyer and seller.
IMHO these MHPs can seldom be revived feasibly after
they have been killed by incompetence. I would buy the
type that is still a going concern, and work to improve
its performance.

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Re: Small Mobile Home Park Gems - Posted by Tony Colella

Posted by Tony Colella on September 05, 2011 at 13:36:29:

We don’t have to buy the run down park in this market because of the downward pressure on pricing due to these type of parks and foreclosures.

There are active income earning properties on the market now that have had to reduce prices in order to be considered by this market.

I agree with you that a total turnaround is a lot of work and that was not my point. However for someone just starting out, this type of park might be just the property they need to create value one unit at a time and actually get paid for it in true appreciation due to the income valuations (CAP rates etc.).

For a newer investor this might be a slow flip. For a retiring investor this might be a long term cash flow project to supplement personal income without having to take on a part time job.

For a new investor looking to expand grow this could be a property they can trade up from into larger and larger deals.

We all have to start and end somewhere. Many of us need to start with what they can afford and what they can handle and a small park may just be the type of property to consider.

Tony

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Re: Small Mobile Home Park Gems - Posted by Shawn Sisco

Posted by Shawn Sisco on September 05, 2011 at 14:34:24:

With the type of Park that you have in mind Tony; how long would it take to pay off, if an operator didn’t take anything out of the til?