Buying Mobile Home Parks: How To Take Advantage Of The Best Prices In Decades

Warren Buffet once said of Berkshire Hathaway “we only get greedy when others get fearful”. That statement has never been more accurate in tems of the opportunities in the mobile home park business. We are approaching a time when the owners of parks for sale are fearful, and their fear is amplified by a struggling mobile home retail industry and a sudden reversal of fortune in lending. It appears to be the perfect storm for many owners, and that cyclical train wreck is going to lead to some great buys—if park buyers are properly prepared to take advantage of this rare opportunity.

The causes of the crisis

The mobile home industry had its subprime meltdown in 2000 after a period of lax lending standards. Repossessions went through the roof, and with every mobile home dragged to auction came a new low in collateral value: $35,000 homes were being sold for $5,000 at auction. In turn, this re-valuation of collateral led more owners to abandon their vastly overvalued mobile homes.

As the lenders stopped financing mobile homes, dealers could not find any credit-worthy buyers to buy their inventory. Shareholders in publicly-traded manufacturers who purchased in 1999 saw their stock fall by 90 percent in 2008. With dealers selling fewer homes, it has become difficult to fill mobile home lots, and park owners are faced with the possibility of losing more customers through foreclosure on a daily basis.

Park owners have their own lending woes: A few years ago, many banks were aggressively approving loans for parks to be purchased, but many of these lenders have virtually shut their doors to new loans. This is the result of the extreme losses which banks are sufferting from other real estate-related loans, though most mobile home parks are still solvent and repossessions of mobile home parks are relatively uncommon. Investors interested in buying a mobile home park must have great credit and sufficient cash for a down payment or the loan will never materialize. In addition, many park lenders have become stricter in looking at occupancy, criteria and location before providing loans.

The opportunities

Under these circumstances, even when offers are made, the buyer usually cannot get financing, and many park sellers are beginning to perceive their parks as nearly valueless. Most notable are the parks that have less occupancy than is required for a bank loan (say 60 percent), but which show reasonable positive cash flow. Despite many solid selling points and a low asking price, the seller may believe that the park will never find a buyer, and so the price just keeps dropping.

The key buying opportunities in parks today are:

• Parks that have just enough vacancy to be unable to get financing, yet can reach this occupancy level (normally about 80 percent) with the addition of only a few homes
• Parks that have sufficient occupancy, but have lousy financials due to mismanagement, and costs that can be reduced
• Parks that can attain an enormous rent boost upon closing without any changes in occupancy to attain attractive numbers
• Parks that come with additional real estate assets which can be subdivided and sold off, to reduce the basis in the park

These opportunities allow a buyer to increase the park income almost immediately, and with little risk. They also circumvent the weakness in the market (dealer sales/occupancy/financing issues) and allow the buyer to obtain a winning deal from the start.

Buyer preparation

To successfully take advantage of these opportunities, buyers should sharpen knowledge of the industry. There are dozens of items that should be checked and confirmed during due diligence, and some of these can cause you to lose your entire investment if they are missed. Knowing how to build a sample budget in line with industry-standard cost ratios is also essential to success, and once a good deal has been made, the buyer must know the strategies to successfully manage a property and maximize its profitability. For those who want to learn, there are courses on mobile home park diligence and management available, which are essential for the novice and even experienced investor crossing over from another asset type.

Buyers must also have the capital necessary to make the down payment and pay the additional capital expenditures necessary to put the park in good working order. Buyers should line up this capital before searching for parks. Parks are usually sold with a 30-day due diligence and a 30-day financing period—so there is really no time to raise capital after the property has been tied up. Knowing the maximum amount of capital available to you will help shape the size of deals you will pursue.

For buyers, having a lender who knows and trusts you is another essential ingredient, particularly on deals which have a blemish which you will resolve upon purchase. Consider consulting with a loan broker who has access to all of the current lenders for mobile home parks. It is always advisable to have current financial statements and a resume on real estate experience.

Where to Find Deals

There are approximately 50,000 mobile home parks in the U.S. but you can stat with the 800 to 1,000 that are shown at any given moment on www.mobilehomeparkstore.com or www.loopnet.com. Most of the listings will include a thumbnail financial statement and indications of the seller’s urgency in the form of notations such as: “make offer”, “highly motivated” and “must sell”.

While there are many methods to find park sellers, such as cold calling and direct mail, your goal is to find sellers whose park has sat on the market for a while and who might be more willing to deal. This important list can only be found on the sites mentioned above where, existing, seasoned sellers’ listings can be found and examined.

Not since the Savings & Loan crisis of the 1980s have so many great deals on mobile home parks been available. Since these cycles only come every couple of decades, this is one opportunity that may not come again in your lifetime. So it is important to carpe diem—seize the day.

If you take the necessary steps to succeed, you may find yourself owning a profitable mobile home park in the near future.