So I have been a landlord for the past 15 years or so, a couple of single family homes and a couple of 4plexes. I have come across a MHP and thought I would get a sanity check. Here’s some of the basic info:
23 park owned homes on 2.5 acres, all mid 1970s. There are 23 lots
utilities all separately metered
Rent for 1012 (15% vacancy) 110,000
Annual Expenses:(from 2011 schedule E - total is $62,090.00)
From what I have been reading so far I don’t think the numbers are too far off, but I wanted to get a feel from the experts if this is off base or not. They are basically valuing each lot for $15,000 to get to this purchase price.
The water/sewer lines are 14 years old, the electric is underground, the lots are pretty clean. No pets are allowed. Location isn’t the best, it is near an interstate so there is lots of traffic noise.
As usual, it depends. #1. It depends on the condition of the park and homes. #2. It depends on how much net monthly income you want from it. #3. It depends on the accuracy of his records. #4. It depends on how you pay for it. All that being said, here is my cursory analysis based on analyzing several parks but I do not own one.
Let’s assume his numbers are accurate (huge assumption). Owner financing with 0% down.
$345,000 at 8% for 20 yrs = 2885.72/mo. mortgage = $34,628/yr
Income $110,000
minus $ 62,090 expenses
Net $ 47,910
minus $ 34,629 mortgage
net pre tax $ 13,281 or $1,107/ mo.
Is that enough income for you to own/manage this park?
I noticed there is $683/mo. in Mgt fees as an expense. Did that go to the P.O. or another person? Is tree maintenance considered? If you have to have a down payment it will obviously lower your mortgage payment but also lower your return on investment, no? Are the rents at market price, higher, lower?
Alternatively you can assign a $$ amount for lot rent that would be appropriate in your market. Work the value of the park alone then value each of the mobiles individually and tally that in with value of the park. This is likely to leave you with a significantly lower value, I’d guess about half the asking price because the homes are so old.
IMO, 40 year old trailers are just about finished their useful life UNLESS someone has put a lot of money into them to upgrade and maintain them.
My biggest concern with this park would be how much longer can I squeeze rent out of these old trailers before replacing them? And MOST IMPORTANTLY will the county (and the lots themselves) allow me to replace them. With an infusion of more money, of course.
The going rate for lot rent around here is 225/month. My banker would do a loan with 20% down, 20 year amortization, 10 year balloon with a 5.5% rate. I too am concerned about the age of the homes, without going inside each of them I can’t really tell what shape they are in. I have a meeting with the county next week to go over some Q&A. The 683/month was an estimated expense for park management is all. From what I have seen I think the rents on these are market price. The age of the homes worries me also, and I think the price might just be too high for what I would be getting myself into.
Beaker, it sounds like the MHP should service the debt… do you see significant upside? can you bump lot fees right away? can you reduce expenses? It sounds to me like you can improve its performance; but unless you are looking to increase your rental portfolio and work this park for the next 10-15 years, i can’t see an exit plan. A 23 pad park can’t afford a manager, and put the thought of a prop management company out of your mind (square peg- round hole).
That all having been said, if you are hands on you will probably like this little park better than your other rentals.
[QUOTE=shawnsisco;886156]Beaker, it sounds like the MHP should service the debt… do you see significant upside? can you bump lot fees right away? can you reduce expenses? It sounds to me like you can improve its performance; but unless you are looking to increase your rental portfolio and work this park for the next 10-15 years, i can’t see an exit plan. A 23 pad park can’t afford a manager, and put the thought of a prop management company out of your mind (square peg- round hole).
That all having been said, if you are hands on you will probably like this little park better than your other rentals.[/QUOTE]
Maybe another way to hear the above is you have the option to buy a job if you are looking for a new job. At the end of the job, it will be hard to exit.
Hotel California? You can enter at any time but you can not leave?
I guess it sort of depends on how much time it would realistically take to manage this. Is it a national guard park (1 weekend/month, 2 weeks per year), or is it a full time job?
My original thoughts were to try to get the homes sold (realizing that will take 3-4 years), so i can just rent the lots. The thing is I don’t think they are worth more than 4-5k per, which means at the end if i can get them sold I am bringing in 5175/month in lot rent on a 350k piece of land, (plus whatever i can get out of the homes)
I don’t know enough to really know if i can sell these or not, i suspect that if they were easy to sell then the current owner would have done just that.
The reason it is being sold is due to her husband passing away.
The little MHP that Lonnie’s daughter bought comes to mind…these small MHP’s can make a fantastic rate of return long term…but it is hands on, just how much long term hands on depends on your screening, or put another way how long can you afford to be patient when filling vacancies.
I have a bit larger MHP, and I like its performance - especially in comparison to SFRs and apartments.
As for selling the homes, that is what I do. But in many states right now would be better to operate rental until SAFE, dodd-Frank regulations are settled at State level.
Assuming $225/ mo/ pad. If you sell the homes and evaluate the park only with $69,000 down you are left with
Income from pad rent $5175
minus 15% vac $776
Gross income $4398
minus 46% expenses $2023 No mgmt fee included
minus mortgage $1899
Net before taxes $ 476
Assuming you can keep your expenses at 46% because you have no homes to maintain.
Now sell off the homes. Around Cincinnati a 1970s home usually maxes out at $5000 if beautiful. Typical is $700-1200. If you could miraculously get an average of $3000 per home you would have your $69000 back and be making a whopping $476 on OPM with your hard work which may take 1 day a month or 2 days a week who knows until you get into it.? Not to mention all the risk, and where is the upside? That’s $20.76/mo/pad profit.
I think it is overpriced by at least $50,000. Even then I don’t see it as a great deal.
C’mon Shawn, I know you would pay more than me (cause I want a home-run bargain if I take on this headache) but still, any numbers?
I’m not saying that leaving the park as-is should be the plan, but for now with the uncertainty of state legislation…maybe renting for a while is prudent, but when you are to sell these homes, you wouldn’t be selling them for cash…cash buyers move homes, and Beaker doesn’t need that. Sales would be Lonnie Deals
So, you get 23 notes at say $1000 down + 200 mo for 24-36 mo and the churn, but if beaker is patient, he doesn’t need to evict any renters- just try to transition the renters into ownership and as that occurs he will get the expenses down in the 30% range, bump lot fees by $20-$30 and the outlook gets quite a bit rosier, This from a park that makes $$ from day1, yeah I know after debt service, not much is left over, I’ll bet this MHP beats his other rentals performance…but of course negotiate the best deal that you can, and as I stated before;the main thing- it has to fit with Beakers life.
I think for me the price needs to be better before I would be willing to tackle this. (of course what buyer doesn’t say that?) I can fix things, I can remodel things, I can deal with difficult tenants, I can coordinate jobs with handyman/subcontractors . I grew up in a mobile home so I am somewhat familiar with some of the basic issues that you can run into. I’m just not sure if the amount of money this thing makes will be worth the time and the amount of money I would have to put into it.
My realtor has set up a meeting with the seller and their realtor, I will feel them out at least and ask some more questions. At a minimum I might at least learn something.
Ok so I met with the owner and her realtor today. There are 4 vacant homes that need to be rehabbed. The rest of the ones she said her husband went through and fixed up before they were rented. Doing a walk through the park next week to look inside a few of the occupied homes and all of the vacant ones.
She gave me an itemized list of her expenses so far this year with dates, it is pretty eye opening how much stuff she is buying for repairs and maintenance. Almost 1000/month of stuff going to the store at least 3 or 4 times a week.
After looking at that list I am not sure if I am ready for this or not. If I have to interact with my tenants and fix items on a daily basis I don’t see how this is going to work.
Thanks Shawn.
I know lot rent-only parks are often run at 40% expenses. I am impressed it can be run as low as 30%. I was using a very conservative higher expense rate for a newbie MHP owner just to hedge bets.
Beaker,
I have heard from some rental-park owners that the expenses are pretty high when the homes are older. That being said, I never heard Tony complain and he has some oldies. Pay close attention to Shawn’s recent post. There’s gold in them words.
Well I did a walk thru the park and some of the homes today. Not something that I am willing to tackle at that price.
Decks have have missing sections and none of them are finished so the older ones are rotting
Some of the decks are coated with particle board and are rotting
skirting is plywood/pressboard on most of them
windows are rotting out on most of them, broken out and boarded up on a few (with people living there
Pretty much every house needs to be painted,
Soffits are rotted out on most of them and need to be replaced
floors have soft spots on every one that I went into,
ceilings have stains where there was leaking.
On one corner there was an empty spot that they are calling a space. I don’t think is big enough to fit anything in,
on another corner the home (currently gutted and used for storage) that is on there is too close to the road. The listing realtor tells me "you might not be able to put another home there once you take that out.
The 3 other homes that they are saying could be rehabbed are trashed. They are basically a shell. When we met in person last week the lady said that they were going to rehab them, today she said they should be removed. They are full of stuff, (I felt like I was in an episode of hoarders)
Frankenshed - they built this shed thing out of a couple of mobiles connected at an angle with a pole barn thing in the middle. (hoarders take 2)
There is stuff everywhere outside, boards, trusses, landscaping blocks, half finished decks
gaps (I mean big gaps) in the doors,windows
siding is pulling away/rotting on most of them
I think some of the homes could be saved, but most of them deserve a burial. As of now I’m not going to do anything with it I would be interested if the price was lower (much much lower), because I think I could turn it around with some time and money.
Am I being too picky by passing on this? I didn’t expect it to be pristine, but there is just way too much deferred maintenance here, plus some of these places are beyond repair and will do nothing but cost me money to get rid of.
Beaker,
It sounds like they’ve already taken all the value out of it.
That leaves the next owner holding the bag (dumpsters). I see two choices here. Buy the whole mess for $40K and get to work (50-70 hr. weeks) for the next seven years or find a better deal with less work.
I have heavily rehabbed about 20% of the 145 MoHos I’ve done in the past 9 yrs. I can tell you, you are right. In almost all cases, the $1000 to junk those bad homes is better spent than the $4500 to fix them up and end up with an unwanted obsolete home.