Mobile Home Parks 101.ORG
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When considering mobile home parks for sale it is essential to understand the primary difference between purchasing a community which is existing and the undeveloped or partially developed community. Leave the developing for the developers, unless you really know what you are doing, have a fantastic grasp on the demographic you are building in, and are in a market that can absorb a 60 unit or better fill rate per year, then you should leave the development projects alone. Existing communities can be difficult enough to get your financial arm around the numbers and to evaluate good deals from bad deals let alone development opportunities. Development deals just make the guess work more difficult. You really need to understand a few very important points when thinking about development type deals. Lets explore the right climate and the wrong climate for a development situation.
Some factors to consider are:
Lets start with the local market and demographic. Look at the other parks in the area (at least a 20 mile radius from the subject property) If you have 10 parks in the area and some are very nice, some are not so nice, and some are in between, it is important to distinguish what types of communities you are competing against, the amount of rents they charge their tenants including which utilities are included and what other additional charges they impose upon their tenants, what amenities they offer, and how the occupancy rates are in those particular communities.
If you are in a market where almost all the parks in the area have a 10% vacancy factor, then, development should be a question of great concern. Don't fool yourself into thinking if you build it they will come. It does not always workout that way. You need to use some simple common sense and do a little homework. Look at the average rents in the area. Look at the expense factors for newer communities and extrapolate some numbers to determine the possibilities of expansion. Let's take into consideration a small evaluation table which will help decide if it is worth it to build your own community based on some given figures.
If the rents in the area are $400.00 a month, and the expense factor for your community is 43%, and it costs $18,000 per pad to develop the community, you can quickly decide if its worth building by performing the following simple calculation.
400(lot rent)-43%(expense factor 172)=228 (NOI) per month
228*12=2736/9%=30,400
30,400 is what your pad is worth after you find someone to occupy it at $400.00 a month. In this case it is worth it to build.
Lets do the same calculation in a market that can only with stand $200.00 a month for lot rent.
200(lot rent)-43%(expense factor 86)=114 (NOI) per month
114*12=1368/9%=15,200
15,200 is what your pad is worth after you find someone to occupy it at $200 a month. In this case IT IS NOT worth it to build. The cost(18,000) to build exceeds that value(15,2000 per pad. You are far better off finding a mobile home park for sale that has a realistic 15,200 per pad sales price. In fact, the same goes for the 400.00 a month community, if you can buy it and its fully occupied or close to full, and the price per pad is 30,400 provided the numbers are real and there is no smoke and mirrors (fuzzy numbers) in the evaluation process. You can't lose site of the time value money aspect and the fact that if you buy something that is not debt covering based on its existing income, you really need to take a close look at what you are getting yourself into. Development deals require a great deal of planning, large cash infusions for development phases, large advertising campaigns and an enormous amount of other start up costs. You will want to make sure that there is a market for the product you are selling, a bank to loan the money on that product at a realistic rate, and a real need for the type of community you have to offer. If you cannot attract the client, or get financing to your potential tenants, you are probably going g to lose a lot of money.
Big developments are for big developers, let them do what they do best. You should concentrate on buying something that makes economical sense today.
So how about partially developed communities for sale? Everything boils down to numbers. The same formula applies always. The existing sites should be considered a community on its own. If it is a deal you like and an area you are interested in, at least make sure that the revenues from income producing portion of the mobile home park for sale can at least throw off enough cash on cash return to build a reserve for a future phase of development. See Gorial Realty LLC for special calculators to evaluate these types of communities or call you representative today for help with numbers.
We hope you have a better understanding when it comes to mobile home parks for sale and considering buying a development type community vs. an existing community. Keep in mind there are good deals and bad deals in each type of a buy and really, everything always boils down to numbers. You should always take into consideration your best case and worst case scenarios and get the facts before you start spending your hard earned money. This is a wonderful business, and if you play your cards right you will exceed accordingly, however a couple big mistakes can set you back for long enough to make you wish you never thought of the business in the first place. Take advantage of our knowledge base and free evaluation services if you are not sure what to buy and or how to evaluate.
Should you have any questions about this site or any site within the Gorial Realty Family of web sites feel free to call upon us for answers.
-Samer N. Gorial, and John P. Gorial of Gorial Realty LLC (866) 66 PARKS