| Mobile home parks are known for their cash flow, | | | | $97,000. |
| and this will usually grow in time. I asked a real | | | | They are asking $800,000 for the park. You talk |
| estate agent if the mobile home parks in this area | | | | to a banker, and do some other homework, and |
| ever are for sale. Almost never, he told me, | | | | make an offer of $720,000, explaining that you |
| because they provide so much cash flow that | | | | need to hire a manager, and although he'll live on |
| owners don't want to sell. That's worth | | | | site for free in the home that the owners |
| remembering. | | | | currently occupy, you still need to pay him. You |
| Another important point is that being a landlord or | | | | have to have cash flow after all expenses, or the |
| owner of a mobile home park is not like owning | | | | deal doesn't work for you. You have already |
| or managing apartments or rental houses. You are | | | | found that you can probably get a manger for |
| responsible for the big things, like plowing the | | | | free rent and $12,000 per year. |
| snow off the park roads and keeping the park | | | | You also make the offer contingent on obtaining a |
| looking nice. Toilets and light bulbs and broken | | | | loan for 80% of the total, and on the sellers |
| doors, on the other hand, are never your concern. | | | | providing financing for another 15%. This means |
| The tenants own the home and just rent the lot. | | | | you will need enough cash for a 5% down |
| This makes for simpler landlording in general. | | | | payment and closing costs, plus a contingency |
| Of course you do still have the issues of collecting | | | | fund for any surprises. They counter back. |
| rent on time and dealing with problem tenants. But | | | | In the end you agree to $750,000. A loan from |
| look at the leverage you have. If they don't pay, | | | | the bank for $600,000, at 9% interest, with a ten |
| or if they cause problems, they can effectively | | | | year balloon, but amortized over 30 years, will |
| lose their home. You decide which homes are | | | | cost you $4,828 per month, or $58,000 per year. |
| allowed in your park, and if they have to take | | | | The sellers agree to carry back a note for |
| their home out of the park, it is expensive. In | | | | $120,000, due in total in ten years, but with |
| fact, if they want to sell it, it may be worth | | | | interest only payments each month, at 12% |
| $15,000 in your park, but only get them $4,000 | | | | annual interest. That means $1200 monthly, or |
| from a dealer. | | | | $14,400 per year. |
| In other words, the tenants have a lot to lose if | | | | That means you'll need $30,000 down, plus about |
| they don't follow the rules. This makes it easier | | | | $10,000 in closing costs. You also intend to spend |
| for an owner to deal with the occasional problem. | | | | $5,000 in improvements. Your total investment will |
| I recently spoke to an owner of a mobile home | | | | be $45,000. |
| park in Arizona who had to evict a tenant with | | | | Expenses will go up because the new insurance |
| the help of the sheriff. He left without his mobile | | | | policy costs more. The property taxes will also |
| home, and under the law, the owner will soon be | | | | rise, because the property was under-assessed. |
| able to file for an abandoned property title, and | | | | You figure that the total expenses, with your |
| then sell the place to recover lost rent. It's nice to | | | | new manager, will be around $49,000. Adding that |
| have these options. | | | | to your loan payments, you project a total annual |
| Cash Flow With Mobile Home Parks | | | | outlay of $121,400. |
| Many mobile home park owners have such great | | | | Based on the previous years income of $130,000, |
| cash flow because they have owned the park for | | | | you'll make about $8,600 on your $50,000 |
| a long time. They may have paid off the original | | | | investment. That's a cash-on-cash return of 17% |
| loan for the property, and in any case have | | | | or more. Not too exciting, but then you will also |
| certainly raised the rent over the years. It may | | | | be building equity. You also have an ace up your |
| not be so easy for a new buyer to get decent | | | | sleeve. |
| cash flow at the prices that sellers are asking. | | | | In the course of your research, you found that |
| However, it may be easier than with many | | | | lot rent in other comparable parks is averaging |
| apartment buildings or rental homes. This is | | | | $285 per month. After you spruce up the place |
| because mobile home parks are not popular | | | | with the $5,000 you allocated for that, you will |
| investments. Investors invest for income, but | | | | raise the rents to $290 as the leases expire. |
| prestige also plays a role in what they buy. It is | | | | There is no reason for anyone to go to the |
| more fun to say you own an apartment building | | | | expense of moving over a $30 increase that is in |
| than a mobile home park, so many will take a | | | | line with what other parks are charging. |
| lower rate of return from the former. | | | | That $30 times 40 spaces is $1200 per month, or |
| Suppose you are looking at a mobile home park | | | | $14,400 more income annually. Add that to the |
| that has 42 spaces, and all but two are rented. | | | | $8,600 and you'll have $23,000 net income by the |
| The lot rent is $260 per month, although some | | | | second year, on an investment of $50,000. |
| pay more for pets or an extra parking space. | | | | Furthermore, you arranged to close on the 5th of |
| Some income is also derived from the laundry | | | | the month. 90% of the rents are collected for |
| facilities. The current annual income is about | | | | the month, a total of around $9,000. Since rent is |
| $130,000. | | | | paid in advance, you are credited for the |
| The owners pay taxes, insurance, electricity for | | | | remaining 25 days of the month. This amounts to |
| common areas, advertising when spaces are | | | | $7,500, reducing your cash needs at closing by |
| vacant, maintenance on common facilities, legal | | | | that much. In other words, you really only have |
| expenses, and maintenance for the road through | | | | to invest $42,500 to get that $23,000 in annual |
| the park. This came to a total of $33,000 the | | | | cash flow. |
| previous year. Income before debt service was | | | | |