Mobile Home Parks Dirt Goldmines

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Mobile Home ParksDirt Goldmines
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State of the Industry

• High Vacancies
• Run Down Properties
• New Construction is virtually non-existent
• Mobile Home financing (chattel loans) has dried up

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Can You Make Money with Mobile Home Parks in
Todays Environment?

• Solid Property (purchased right)
• Solid Plan
• Great cashflow AND
• Large Equity Buildup

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Why Invest in Mobile Home Parks?

• Own a monopoly compliments of the local
  government
• Limited competition
• Low resident turnover
• Tremendous upside potential opportunities

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Four Profit Centers

• Lot Rental Income
• -Filling vacant lots
• -Increasing lot rents
• Mobile Home Sales
• -Buy wholesale, sell retail
• Financing Spread
• -Difference between acquisition loan rate (9-10)
  and customer loan rate (12.75-14.5)
• Equity Increase
• -Property value increases at least 11,000 for
  every vacant lot that is filled with an income
  producing mobile home

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Property Types

• Turn-around park
• -older park
• -older homes
• -half empty
• Development that went bad
• -fairly new infrastructure
• -newer homes
• -high vacancy
• Mature Community
• -low vacancy
• -well maintained
• -REIT owned

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Where are the deals?

• Economic conditions have created motivated
  sellers
• - Record mobile home sales in the 90s due
  to massive loan fraud
• - Parks were being filled to the brim by
  dealers
• - As repos escalated, parks became less
  profitable
• - Many owners dont have the capital or
  knowledge to turn the park around

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Finding the Deals

• Specialized Brokers
• Local Newspapers
• Networking With Investors
• Direct Mail
• Auctions
• Internet
• -www.mobilehomeparkstore.com
• -www.loopnet.com
• Knocking on Doors

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How Much Should I Pay for a Park?

• 3 Methods I use to determine price.
• 601 Rule
• Capitalization Rate Approach
• Mobile Home Park Analyzer

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601 Rule

• Average monthly lot rent X 60 occupied lot
  value
• Each vacant lot is worth half the value of an
  occupied lot
• Total Value the sum of the above minus capital
  improvement requirements
• This method is the MOST conservative when
  determining value

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601 Rule Example

• 100 unit park
• 50 occupied spaces
• 50 vacant spaces
• 200 average lot rent
• 10K capital improvement requirements (road
  paving)
• 200 X 60 12,000 X 50 600K
• 6,000 x 50 300K
• 900K
• Minus capital improvements -10K
• CURRENT VALUE 890K

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Capitalization Rate Approach

• Cap rate directly related to risk and effort
• Strictly based on Net Operating Income (NOI)
• Parks have sold from 5 cap. and higher
• 5 year national average is 9.8

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Understanding Cap Rates

• Lower Cap Rate Higher Price
• 100,000 NOI at 7 cap rate 1,428,000
• 100,000 NOI at 11 cap rate 909,000

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Cap Rate Example

• 100 unit park
• 80 occupied spaces
• 20 vacant spaces
• 200 average lot rent
• 16K monthly gross income 192K annual GOI
• 6.4K monthly expenses - 77K
• NOI 115K
• 10 Cap Rate 115K/.10
• CURRENT VALUE 1,150,000
• This method works best for mostly occupied
  properties.

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Mobile Home Park Analyzer

• Easy to use Excel based program
• 40 questions with values attached to each
• Evaluates properties in three areas Condition,
  Seller Motivation, Pricegives a recommended
  value
• Used strictly for pre due diligence onlynot a
  substitute for thorough on-site due diligence

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Taking the Next Step

• Once youve found a deal put it under CONTRACT
• Make sure the contract is subject to DUE
  DILIGENCE.theres still a lot of work to be done
  to make sure you dont get into a bad deal

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• Questions?