SELL YOUR MOBILE PARK DIRECT
Having been in the mobile home park business for 25 years, I know why people want to sell.

The Mobile Home Park Quick Evaluation Sheet: An MHP Due Diligence Checklist Before You Sell

Just because you’ve put a ‘for sale’ sign in the yard doesn’t mean your mobile home park is ready to sell. Too many hopeful mobile home park sellers jump the gun and try to get offers before they’re ready. This is a mistake; you could be missing an opportunity to improve your park’s value with some quick and simple fixes.

If you were going to sell a used car, you wouldn’t just slap a sign in the back window and hope for the best. At least I hope you wouldn’t. You’d wash it, clean out the inside, and maybe do some basic repairs. You’d check out what similar cars are going for so you could set a competitive price.

Smart sellers do this because they know they can expand their offers with just a little bit of elbow grease. Do the same thing for your park by running through the mobile home park quick evaluation sheet below. It’s a great way to maximize your profit while minimizing your time investment when listing and valuing your park using a simple due diligence checklist.

The Quick and Easy Due Diligence Checklist for Selling an MHP

There are six steps that you need to take before putting your park up for sale covering the appearance, infrastructure, and overall value of your park. Use this resource to do a final audit before you start the sales process. My mobile home park quick evaluation sheet includes these recommendations:

  1. Get rid of park owned homes. You’re selling your park, not park owned homes. Get any mobile homes on your lot out of your name.
  2. Fill up empty spaces. Get your vacancy rate at or below 10% to prove your park is a viable asset to a new buyer.
  3. Improve your curb appeal. Make your park as attractive as possible by fixing up landscaping, parking lots, and individual spaces.
  4. Fix infrastructure issues. Fix any code violations or environmental issues to make sure your sale won’t stall over financing.
  5. Look for ways to increase your park’s value. Do an audit of any undeveloped land in your park to see if that land could increase its earning potential.
  6. Set the right price. A proper asking price will be the thing that catches most buyer’s attention. Make sure yours isn’t too high, or even worse, too low.

These six steps will ensure your park is operating at maximum efficiency before you put it up for sale. If you run into issues in any of the above areas, continue reading for tips to correct the deficits that will eat up your park’s profits.

Evaluation #1: What Are Those Park Owned Homes Costing You?

Most parks I see have a park owned home or three, usually because a tenant decided to abandon it and the park owner wanted to avoid the expensive fix-ups needed to resell it, so instead they kept it and just rented it out. Maybe they were hoping to increase the value of their mobile home park appraisal but, often, that’s going to be viewed as a liability.

The problem with park owned homes is that for the added value of the property, the owners must take on a lot of responsibility. So the home might be worth $8000, but if you rent it out, you’re going to have to do all their repairs and maintenance requests.

So how do you fix the problem? Simple: sell those homes before you try to sell your park. Here are a few ideas to get you started:

  1. Get rental tenants to buy: If there’s already a tenant in the home, they’re likely renting that home because they can’t get financing to buy it. Consider doing a rent-to-own scenario or seller financing to get the home out of your name and into theirs.
  2. Get empty homes advertised: Clean up the property the best you can and put pictures up on free online listing sites like Craigslist or Trulia.
  3. Consider taking a small loss for a bigger gain: Worst case scenario, sell the home at a loss. Most prospective buyers don’t want to deal with empty homes on the lot, so keeping the home could keep you from selling your park, even if you enlist the help of a broker.

Buyers are all over the place on whether they’re willing to buy an MHP that includes park owned homes. Me, I’d prefer not to but I might have some wriggle room if I think I can sell it. Mainly, I just don’t want to drive into a park and see a ton of fixer-uppers for sale. Move it or sell it, just don’t expect me to buy it.

Evaluation #2: Is Your Vacancy Rate Manageable?

I’d rather see a vacant park owned home than an empty space because a vacant home has potential (unless the home is a complete throwaway, in which case just haul it out ASAP). What I don’t want to see is a ton of empty spaces or a ton of really beater homes that are empty or rented out. I like to see nothing higher than a 10% vacancy rate in my parks. That means if you have 100 spaces, no more than ten of them are empty. Above that, I think, “If they can’t fill the space, how can I?” Here are a few things to consider:

  1. Is your rental rate reasonable? If you’re having a lot of trouble filling spaces, it could be because you’re charging too much for them. Check out local listings for similar properties to see if your space rent is entirely off-base.
  2. Are you advertising in the wrong places? If you’ve found ways to cheaply, or for free, advertise your mobile home park, but it’s in places generally reserved for those who want to rent apartments, you’re going about it all wrong. People looking for apartments don’t want to buy an empty space. They’re looking for a place that’s move-in ready. Target your advertising to those looking for a place to park their homes. Consider asking a manufactured housing company to offer your business cards. Also, advertise within your park. If your tenants like living there, they’ll be happy to refer a friend or family member to fill up that space.
  3. Is the space move-in ready? If you’ve let the space go to seed, with overgrown grass or junk in the yard, all someone considering renting from you is going to see is more work. Make the space move-in ready so someone can picture their home on the lot.

Now, if you don’t have a bunch of park owned homes or a high vacancy rate to worry about, you should consider how selling your mobile home park will be affected by its overall look. Any potential buyer is going to want to do a drive through of your park. Be prepared to improve your curb appeal.

Evaluation #3: Does Your MHP Have Curb Appeal?

Beauty is in the eye of the beholder, which is why it can sometimes be hard for MHP owners to see the faults in their parks. Consider doing a short exercise. Bring a friend with you for a tour of your park and ask them to be brutally honest about how appealing it is from the road. Often, the person might be willing to point out issues you’ve gone blind to, including:

  1. Bad landscaping: Only goats like knee-high grass. People think it looks unkempt or, even worse, like it’s filled with bugs and pests. Plant flowers, pull weeds, and keep the grass mowed. Flowers and shrubs can be a good, low-cost way to improve the beauty of a park.
  2. Cracked streets: When I see a park with cracks and potholes in the streets, that tells me park management just doesn’t care. Get some quotes on how much it would cost to lay some new asphalt. Often, it’s an affordable process that will make your park much more appealing.
  3. Lease violations: One bad apple can spoil the whole bunch. If someone sees a trashed property with junk in the yard during their drive through, they’re going to drive past. Make sure your tenants are in accordance with the lease, and send written notices to those who aren’t.

All the above steps are the steps that make your park pretty on the surface. By fixing them, you’ll be able to spur some interest. However, there are some hidden internal factors you need to consider before you put that park up for sale as well.

Evaluation #4: Is Your Infrastructure Lender Approved?

A park might be perfect on the outside, but that isn’t going to make it sellable if you have a major environmental issue or code violation. Infrastructure issues are going to stall your park sale if your buyer is depending on bank lending. Most lenders aren’t willing to loan money when there’s a major infrastructure issue with the park; it’s the backbone of your park, what delivers utilities to your tenants, and keeps them safe. Before you put a park up for sale, or choose a realtor, agent or broker, do the following:

  1. Locate the Phase One environmental you had done when you bought it: If there’s a problem, you’re not going to be able to sell the park until it’s fixed. That’s why it’s best to show any potential buyer your previous environmental report before you get into the nuts and bolts of the sale. If your buyer is dependent on lending, that lender is going to stall your sale if you have even the most minimal environmental issue. Make sure you don’t.
  2. Have a safety inspection: No one wants to buy a park that needs thousands of dollars in handicap upgrades to fix code violations. Get an independent review of your park so you can determine if you have any violations that might make it a less appealing purchase.
  3. Have quotes on hand for problems: If you have an issue in your park, like something from deferred maintenance, at least have a quote if you can’t afford to fix the problem. That way, someone won’t try to lowball you by inflating how expensive it will be to repave the parking lot or seal a hole in the septic system.

After you review your park for potential problems and curb appeal, you also want to look at one final factor. That’s the potential of the park. If there are areas you could be making more money, you want to use them to put your park in a positive light.

Evaluation #5: Where Can You Pump up Park Profits?

Some mobile home park owners might be overly generous on land allowances for tenants, or might not have the money to pay to set up utilities for a potential new space. If you have space enough to add another tenant, consider that in your evaluation. Just because you haven’t chosen to develop the land for use doesn’t mean a new owner won’t. Look at the following:

  1. Do you have empty land? If so, how many acres do you have, and is it enough to add another space? Keep in mind the number isn’t cumulative. Just because you have an additional half acre not in use for homes doesn’t mean you can tack it on. The space needs to be one that someone can actually park a home on, not one they could park a home on if all your tenants moved their houses ten feet to the left.
  2. How expensive is it to develop? If the land doesn’t already have utilities, how much would it cost to add utility hookups to that spot? Get quotes to show this is viable.
  3. What’s the net space value? Take one year’s rent for that spot and subtract the cost of developing it from that amount. That’s the potential value of that space in the first year. Add that to your net operating income.

After you’ve reviewed all these factors, you’re about ready to advertise your park for sale. The final step is calculating the right asking price. Having a good asking price will get buyers interested—and keep you from undercutting yourself with an ask that’s too low.

Final Evaluation: Have You Set a Realistic Asking Price?

If you have an appraisal around, look at the comps—that will give you a good guide for valuation. Most park buyers are buying for what your park is worth now. That’s why you need to consider the following factors:

  1. Net operating income: How much does your park earn each year, after costs? The calculation is pretty simple. Total annual rents – operating costs = net income. That’s the big factor that will get a buyer interested.
  2. Comparable parks: Check out what parks like yours have sold for in the past. They don’t have to be for sale now. Sites like Loopnet and Zillow will let you look up the history of a property, including prices that it sold for previously. You can also check it out at your county tax assessor’s office, but some will require an in-person visit to gain that information.
  3. Cap rates: Simply stated, the cap rate is the NOI divided by the asking price. If your park makes $100,000 per year and is selling for a million, your cap rate is 10%. Buyers look for cap rates from 7% to 10%, the higher the better. But if your cap rate is higher than 10%, you’re asking too little.

The valuation is the nuts and bolts of your sale; be sure to take the time to go over this mobile home park quick evaluation sheet before your MHP even goes up for sale. Anyone considering purchasing your park is going to look at these factors, so you should know them like the back of your hand—able to recite them in your sleep.

While the curb appeal of your park will get buyers looking, it’s the price that will bring them to the negotiating table. The closer your park is to turnkey, the more appealing that park is going to be. Very few people want to buy parks that are fixer uppers. They want to be able to start operating them next day. If your park is at maximum efficiency, that’s going to go a long way towards getting you a fast sale.

Another good way to get an idea of what your park is worth is to contact a direct buyer. Direct buyers give you a fixed price offer based on market rates, so you can get a general idea of how much your park is worth to buyers. After all, how much someone is willing to pay for your park is the best indicator of its value.

joe-tobin

Most people lose out when they try to sell their park too quickly. They either ignore minor issues that could be fixed to improve its value, or they take the first offer they get because they’re in a hurry. If you want to start off your park sale on the right foot, contact me. I’ll give you a free, fair quote you can use to plan your sale going forward. For more info, give me a call or shoot me an email.

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