I may have the opportunity to purchase a fairly new mobile home park. Occupancy is 100% and income looks good. I have never attempted something like this. Any idea on what a fair price would be in terms of a multiple of annual income? Are there attorneys out there that could guide someone through something like this? Thanks in advance.

Use a cap rate to do analysis and compare to see if it's a deal or not. What's it cash flow at 100% and what is your break even in occupancy.

Do you own the homes or rent the lots? If own, think of maintenance. City water or septic?

Most RE attorneys will know what to look for.

Bonfire97 said:

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I may have the opportunity to purchase a fairly new mobile home park. Occupancy is 100% and income looks good. I have never attempted something like this. Any idea on what a fair price would be in terms of a multiple of annual income? Are there attorneys out there that could guide someone through something like this? Thanks in advance.

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I would recommend reading through Mobile Home Academy stuff, it's pretty good.

Fair price and multiple of income approaches are highly variable based on location and quality. Cap rate is the inverse of multiple and the metric most people use.

Revenue - Operating expenses (not including mortgage payments) = net operating income (NOI)

NOI / purchase price = cap rate.

So if you have a park that made $50,000 NOI and sells for $500,000 you have a 10% cap rate. That same $50,000 NOI for $1,000,000 is a 5% cap rate. If you know an area has an 8% cap rate and a MHP made $30,000 in NOI, a fair price would be $375,000.

Cap rates are usually market specific and product specific. A big park with huge amenities and high lot rent overlooking the Pacific Ocean will command a lower cap rate than rural Kentucky.

Things to consider:
Park owned vs. tenant owned. When doing a cap rate analysis you should only be considering lot rent from part of your park owned homes as part of your valuation. This is to standardize analysis across different types of parks.

For park owned homes add to your lot rent cap rate analysis the FMV of the homes if you could actually sell them. This would be cash in your pockets if you sold them.

Septic, water treatment is going to add significantly more complexity than city water / sewer.

Don't underestimate the operational complexity. Who is managing/ maintaining / collecting rent? Are they good? Do you trust them?

Is there opportunity to add additional pads to the park? For ~$15-20k you can build an extra pad if there is room. If you collect $400 lot rent at an 8% cap rate on this build, you've added $60k of value to your park if you choose to resell / cash out refi.

Malibu2 said:

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Bonfire97 said:

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I may have the opportunity to purchase a fairly new mobile home park. Occupancy is 100% and income looks good. I have never attempted something like this. Any idea on what a fair price would be in terms of a multiple of annual income? Are there attorneys out there that could guide someone through something like this? Thanks in advance.

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For park owned homes add to your lot rent cap rate analysis the FMV of the homes if you could actually sell them. This would be cash in your pockets if you sold them.

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Good analysis/advice.

However, I definitely wouldn't add back the FMV of owned homes. Owned homes produce higher rent than just renting lots and therefore create the higher existing NOI to be capitalized in calculating price. If you sold the units the NOI would suffer. Therefore, the units themselves are a big part of the asset you are purchasing when you cap the existing NOI. If you add them to capped NOI you are double counting them in determining a purchase price.

Definitely also need to subtract any deferred maintenance items. And, I wouldn't assume 100% occupancy into eternity.I would calculate with at least 5% occupancy knowing over time it will fluctuate..even frictionally if nothing else. Finally if the units are ownedthere will be depreciation in the longer term.

Finally, if you need any capital or operating partners.give me a holler..I think mobile home and RV parks are going to thrive in all circumstances as many boomers with little retirement savings sell there homes, use the proceeds in retirement, and move to RV's and mobile homes for cheaper housing once they don't need the space of their old homes and can't afford their high maintenance cost. Additionally, rents are very responsive to inflation pressures. It's why you see RV parks popping up everywhere and getting occupied very quickly.

One thing about cap rates and MHCs. There is a TON of institutional demand for these assets, it's not crazy to see sub 4% cap rates on assets.

Additionally, some of these assets are being purchased for $20M (just an example) but the property's Cashflow can only support a $12M loan amount at a 1.25x cover. Starts to get dicey and requires a lot of equity upfront.

As far as managing the asset:

Please be mindful of the tenant population/situation. You have some people who are living off fixed income and don't have much extra income. Then some greedy group comes in and jacks up the rents at the MHC these folks live at by $300 a month. This not only pisses off the tenants but it's getting the attention of the Elizabeth warrens and what not. I'll link a story in a few.

Additionally - most of these tenants are very skiddish and don't like anyone coming around they don't know. You're best advice is don't show up to the site to collect rents in a fancy BMW, try to build a relationship with them with a manager they like and a maintenance dude as well.

I think MHCs can be a great investment but they are the last bastion of naturally affordable housing that is unregulated by the government. They have incredibly stable cash flows and great returns for long term holds.

Someone here mentioned Mobile Home Academy, but watch out for Mobile Home University (different group from MHA) - those guys are so unbelievably slimy. You can look up a John Oliver Hit piece on them

I agree, that you should avoid double counting. However, in analyzing the valuation of a park there has to be a standardized way to underwrite MHPs that are 100% park owned vs 0% park owned. You're absolutely right that park owned homes have higher rent, but also higher expenses / CAPEX to pay for maintenance & repairs. How it will wash out to NOI will likely be higher NOI, which may help at bank underwriting, but shouldn't impact purchase price of the actual park.

Lot rent x vacancy % x homes - operating expenses = Lot rent NOI
Lot rent NOI / cap rate = Lot rent FMV
Lot rent FMV + Park owned homes FMV (of the MHs themselves) = Valuation.

Completely agree with your view that this is an asset class that should pop with demographic trends and current limited supply.

My company considered a couple deals of MHP's late last year. The cap rates were absolutely insane. Same for RV's lots. To me, you can get the same return from multifamily without all the management headaches. And it's not like there's a stiff drop in competition. There's just as much demand for these things as there is anything else. This is not the asset I would be purchasing at the end of a historical bull market. That's just my opinion though.

These can be great assets to own. If you are lucky and you know an owner who is looking to liquidate prior to the park hitting the market, you have an opportunity to structure a really good deal. I assisted one investor on a purchase and they have bugged me asking for more as they hit a home run on that particular deal. I also agree with many of the valuation comments mentioned previously.

Thanks for the replies everyone. To answer a couple of the questions above, this MHP is under 10 years old, is on city utilities/water/sewer and the homes are all owned by the occupants. It seems like the ideal situation.

I don't yet have the asking price, yet. I'm betting it's going to be ridiculous. The owner's wife (owner passed away recently) is supposedly getting everything appraised right now. I did some reading on cap rates based on the feedback above. I also share the same concern about buying in this year's bull market on housing/real estate. My timing usually is terrible.

Here is the "64 dollar" question: In this market, what would you consider a ballpark cap rate range for the following situations?

1.) A decent buy cap rate
2.) Priced aggressively, would have to think about it, but probably still do it cap rate
3.) Tell the seller "forget it" cap rate

Bonfire97 said:

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Thanks for the replies everyone. To answer a couple of the questions above, this MHP is under 10 years old, is on city utilities/water/sewer and the homes are all owned by the occupants. It seems like the ideal situation.

I don't yet have the asking price, yet. I'm betting it's going to be ridiculous. The owner's wife (owner passed away recently) is supposedly getting everything appraised right now. I did some reading on cap rates based on the feedback above. I also share the same concern about buying in this year's bull market on housing/real estate. My timing usually is terrible.

Here is the "64 dollar" question: In this market, what would you consider a ballpark cap rate range for the following situations?

1.) A decent buy cap rate
2.) Priced aggressively, would have to think about it, but probably still do it cap rate
3.) Tell the seller "forget it" cap rate

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What are your goals? Cash flow? Parking excess cash into an asset? Active management to turn around a fledgling business and increase value?

Without knowing a whole lot more about your goals and liquidity it's a hard question to answer. General advice is to consider financing as a key element.

Most banks will underwrite to a 1.2-1.4 debt service cover ratio. Well call it 1.3. What that means is that for every $130 of NOI, your monthly payment cannot exceed $100 (130/100 = 1.3 DCR). So a valuation can be high and fairly priced, but the bank may only lend up to their DCR. You will have to come out of pocket for the rest.

A handy excel formula for loan value is to figure out NOI / 1.3 = loan payment. In excel use =PV(interest rate, payment periods, loan payment, 0). 0 basically means your loan will be paid off at the end of the bank term.

Purchase price - Loan Value = Your out of pocket.

Add to your out of pocket any large projects you'll need to do day 1 (repaving, new roof for the managers office, landscaping, etc).

I would also ask if the seller would consider seller financing where she acts as the bank. You can potentially come out way less out of pocket and the widow gets a fixed monthly check without the hassles of ownership. Worth asking.

Malibu2 said:

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Bonfire97 said:

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Thanks for the replies everyone. To answer a couple of the questions above, this MHP is under 10 years old, is on city utilities/water/sewer and the homes are all owned by the occupants. It seems like the ideal situation.

I don't yet have the asking price, yet. I'm betting it's going to be ridiculous. The owner's wife (owner passed away recently) is supposedly getting everything appraised right now. I did some reading on cap rates based on the feedback above. I also share the same concern about buying in this year's bull market on housing/real estate. My timing usually is terrible.

Here is the "64 dollar" question: In this market, what would you consider a ballpark cap rate range for the following situations?

1.) A decent buy cap rate
2.) Priced aggressively, would have to think about it, but probably still do it cap rate
3.) Tell the seller "forget it" cap rate

---

What are your goals? Cash flow? Parking excess cash into an asset? Active management to turn around a fledgling business and increase value?

Without knowing a whole lot more about your goals and liquidity it's a hard question to answer. General advice is to consider financing as a key element.

Most banks will underwrite to a 1.2-1.4 debt service cover ratio. Well call it 1.3. What that means is that for every $130 of NOI, your monthly payment cannot exceed $100 (130/100 = 1.3 DCR). So a valuation can be high and fairly priced, but the bank may only lend up to their DCR. You will have to come out of pocket for the rest.

A handy excel formula for loan value is to figure out NOI / 1.3 = loan payment. In excel use =PV(interest rate, payment periods, loan payment, 0). 0 basically means your loan will be paid off at the end of the bank term.

Purchase price - Loan Value = Your out of pocket.

Add to your out of pocket any large projects you'll need to do day 1 (repaving, new roof for the managers office, landscaping, etc).

I would also ask if the seller would consider seller financing where she acts as the bank. You can potentially come out way less out of pocket and the widow gets a fixed monthly check without the hassles of ownership. Worth asking.

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Seller Financing would also reduce her tax liability/spreading out the tax hit. Depends upon her situation of course, but that's always a reason for seller financing.

Thanks for the replies and additional info about financing. My thought is to only put down what the bank would require and finance the rest. It would seem to make sense to put it on the shortest term possible as to use nearly the full monthly income to pay the note (of course I would have some buffer in there to account for the occupancy not always being at a full 100%).

Since there is really not much there to maintain (concrete/plumbing), I would be planning to hold on to it for monthly income after it is paid off.

I have a possible deal for that owner.

Some homes + land for sale in Lindale, Texas.

100% occupied, room for rent raises, and land enough for another home. Lots of potential.

Email is john@thecatongroup .com

Jizzle89 said:

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I have a possible deal for that owner.

Some homes + land for sale in Lindale, Texas.

100% occupied, room for rent raises, and land enough for another home. Lots of potential.

Email is john@thecatongroup .com

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sweet,,,raise em!

This is how I underwrite them.

Lot rent vs parked owned makes a difference.

Cash vs leverage also will change underwriting.

Who pays the water is the biggest factor. You paying water = cash flow negative every running toilet or broken water line.

I just pretend trailer parks don't even exist. Can't imagine wanting to own one.

Diet Cokehead said:

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I just pretend trailer parks don't even exist. Can't imagine wanting to own one.

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What a valuable contribution to a thread about MHCs.

I can't add much to the excellent commentary here, but I do have some observations I'll toss out:

1. Larger, out-of-town investor groups have been purchasing what were previously locally-owned parks (both mobile home and RV). I have one very close to some commercial property I own and after being locally-owned for decades has changed ownership twice in the past 10 years. I can't say whether it was 'flipped' for decent money or not, but I've always thought the place was pretty rag-tag and yet the deed of trust amount on the most recent sale (not knowing the down) tells me they got damn good money for it.

2. Municipalities are putting the squeeze on allowing new parks in their city limits. The existing parks are grandfathered and I think that makes their value potentially higher than it otherwise would be. That said, value or not, it seems like there's only so much money you can squeeze out of most of those tenants, IF I'm reading the cover of the book right.

3. Managers, it seems, tend to be older couples who are given a place to live at the park, or who, perhaps, were previously the owners. I assume they are also compensated with $$, but how much that is I really can't say. They don't collect the rent by driving up in a BMW or King Ranch, that's for sure!

Good luck to you.

Bringing this TTT

I lived out of my RV for few years and my experience living in a MH park was very pleasant. Neighbors were cordial and it was quiet.

Now looking at it as a potential investment as there are few on the market in my area.

Why do some say never ever build a new park??

I have investors that are always interested in Mobile Home and RV parks if anyone knows of unlisted parks that someone is thinking about selling. I will get back with contact information if interested.

AggieDruggist89 said:

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Why do some say never ever build a new park??

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I'm invested in some MHP through some syndications and have done quite a bit of reading and listening on the topic. I really think it centers around the very likely red-tape and political hurdles mentioned on trying to develop a new park. Just seems there is more opportunity to find an under-managed, under-developed existing park and get a better ROI. Plus you are then likely seen in a great light with local neighbors near the park especially if you improve the asset versus the battle you would be in developing one. I think this "generally" applies, however, if you had access to some unrestricted land in an area where demand would be high I'm sure you could do really well.