This blog is an update regarding our efforts to purchase another mobile home park is 2013. According to plan, we contacted a few brokers and immediately found a property that met our buying criteria and made an offer. Read-on to learn more about the property and our initial due diligence steps!
Description of Property (MHP #1 2013)
The property is located in a N. California coastal community. 47 mobile and 10 RV spaces, senior park, private utilities, built in phases and owned by the same family for many years. The first phase was primarily built for RVs and the later phases include large, multi-section homes. The park is 95% full and probably 50% of the homes are new/modern with wood siding and shingle roofing. There are 5-6 park owned homes and another 5-6 rentals owned by a 3rd party. There are a half-dozen parks in the area and this one ranks above average in terms of overall quality and location. Although there are no major industries located near the park, this is a desirable area for vacationers and retirees.
Highly desirable location and high resale home values ensure any vacancies in the mobile home spaces will be easy to fill. A rent survey revealed rents were significantly below other parks in the area. The price we were provided by the broker seemed reasonable, given the revenue, expense and net operating income of the current operation contained in the 2012 P&L. So the high CAP and below market rents, combined, would align very well with our financial goals (10% cash on cash and 100% return on cash invested within 7 years.)
The biggest concern here are the private utilities, especially the septic. I talked with the county environmental health department and they shared the usual concerns about system capacity for the number of homes. The park is located near some fresh water and there is always the possibility of leaks which can lead to some big remediation and capital costs. I confirmed with the owner none of the tanks or drain fields are located under the homes which is now a “no-no” with the state. I did not check on the well in terms of violations, capacity, depth, age of equipment, etc, so that’s all TBD. I’m also concerned about the level of turnover with the RV spaces and how much time and effort will required to ensure forecasted revenues are achieved. The other issue and this one is a little out of my control, the broker who presented me the deal does not have it under contract (yet.)
What Happened Next?
The location and numbers overruled my concerns so we wrote an offer slightly below the asking price that included the park-owned homes (at no additional cost.) Other terms, 115 days to close, 45 days for inspections, seller to complete our disclosure forms and provide all requested data. We contacted a lender (a personal friend with the park owner) and she expressed interest in the deal. We asked for a reply in 72 hours and the seller called and asked for an extension. Net/net, a very good start!
If you’d like to receive all the details about the properties we are considering, please reply and I’ll add you to the “friends, family and investors” list. Folks on this list will receive a copy of the broker’s underwriting, our financial analysis of the deal and due diligence results as they become available. If you have a question or comment, please reply below. If this post could be of value to someone you know, please LIKE and email or repost to Facebook, LinkedIn or your favorite network.