AMA - Small Mobile Home Park

Ray from Florida asks,

I am talking to an owner that will owner finance 100% of a small 20 unit mobile home park, that also has 3 commercial buildings.

The problem is that 16 Mobile Home sites are occupied and the homes are PARK-OWNED. From everything I’ve read it seems wise to see if I can get the tenants To own these homes through a rent to own program or gifting.

The sellers business would then be very different than mine and therefore value the different differently, right? This park has been on the market for over a year.

How would I go about valuing this property while also understand if he is going to finance the whole thing for me.

Thanks for your help!

Ray, this is a great question.

The problem that I see with the park is that it is too small. Even if you get the park to 100% occupancy, you're only looking at income from the ground rent in the mobile home park of about $4,000-$6,000 a month. That doesn't even pay for the staff to operate the park, let alone pay taxes, maintenance, and so on. Even if you got the park for free, I'm not sure it's worth the effort. If the seller is going to seller finance 100% of the park, then you are sort of getting it for free.

If they’re offering seller financing from the beginning, it means that other have tried to buy it already and passed on the opportunity.

If you aspire to become an investor, as opposed to simply buying yourself a job, then you need to look at assets that generate enough income to hire staff.

You only have four vacancies, and therefore your upside is pretty limited. You can only collect an additional $800-$1200 a month depending on how much you charge per home site.

If you’re serious about getting into the mobile home park business, I suggest that you build relationships with people who are experienced mobile home park operators who can help mentor you on what makes a successful park.

The fact is, you can have a vision for the community that you want to build. Some parks are the housing of last resort for the economically weakest members of our society. These are sometimes the worst slums in an area.

At the other end of the spectrum, there are amazingly beautiful parks that are well kept, retirement communities with great amenities, and some of the new high quality modular homes that are built by the nation’s best modular home builders.

All too often, I see newer investors going after smaller assets because they don’t have the cash to buy something larger. The skill that’s missing is the skill of raising capital.

The conventional way of thinking is to only use the money you currently have available at your fingertips.

I personally believe that the ideal mobile home park should have at least 150 spaces. If it’s distressed, then it should be at about 50-60% occupancy and operating at break-even. From there, we can take the park to full occupancy and add significant value with minimal downside risk. Those larger parks might cost more to purchase, and you probably need more cash than you have available.

A larger park brings enough income to justify the staff. If you want to be a real estate investors, then you need a project that can fund employees.

If you had the skill of raising capital, then the purchase price ceases to be an obstacle. If you had a team of specialists where one of you was an expert at operations, another was an expert at raising funds, and perhaps a third was an expert at construction management you could grow and scale your business without limits.

Don’t be scared of a larger project. The path to financial freedom is found in those larger projects, but only when combined with the skill of raising capital.