Welcome to the Mobile Home Park Academy podcast. In this episode, Charles and I will discuss mistake number 18 from our popular eBook, “The 21 Biggest Mistakes Investors Make When purchasing their First Mobile Home Park…and how to avoid them.”
One extremely common mistake that new investors find themselves making is that they don’t have enough capital to operate their assets after they buy them. Think of the following scenario. You are an investor who has $100,000 to invest. With this money, you conclude that the bank will match your down payment 4 to 1 and that you can afford a park that is $400,000. That’s great news! Time to get to work finding it right?
Maybe not! Let’s also think about some other things that could happen. Most parks need some form of capital repair on the front end. This may be in the form of resealing/resurfacing roads, putting up new signage, removing homes, getting rid of debris and junk, painting and/or renovating homes, etc. Where is your allowance for these items? How do you determine how high this amount should be?
As a general rule of thumb, you should set aside about 4% of your purchase price in order to establish an initial operating budget. Something else to consider is that normally your bank will want to see that you have some liquidity even after you purchase the asset and may require you still have up to 10% of the purchase price available in short term assets.