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After a half a century of combined years in the real estate business, MHU.com is the only place that will give you the good, bad and the ugly details on Mobile Home Park Investing. Local Sarasota affordable-housing guru, Harvey Vengroff, tried for 10 years to get approvals for an affordable housing project of 368 units. For all of the talk the government agencies have for the topic, the reality is no one wants affordable housing in their neighborhood. Sarasota County loves to discuss the situation, but seldom does it result in a benefit to the folks that need the housing. As rising mortgage rates sideline aspiring U.S. homebuyers, the market’s multifamily segment appears... Miami-Dade County is officially the hottest rental market in the US,...
There is always a possibility that the cost of a mobile home park is different for different buyers. For example, the price of the same mobile home can be $5,000,000 and $5,100,000 for different potential buyers. You should treat furnace cleanups like you would a dentist appointment. Regular check-ins for cleaning and maintenance are important as they will not only preserve your furnace but also save you on energy bills in the long run. So in reality, a certain mobile home park will have a different value to each and every person. The idea is to decide what you want or will require in terms of your investment and then work to make the deal fit these requirements.
Not following the rules on private utilities
It doesn’t mean you should completely ignore parks that have private utilities, but you should definitely become knowledgeable about those systems if you are seriously considering taking on ownership of these parks. Parks come if many sizes in terms of land base and numbers of rentable pads. A rule of thumb, any park with a minimum of 30 pads can afford to have an onsite manager. The manger is usually paid with free monthly pad rent in exchange for general management duties. When evaluating a park the overall condition and often ‘first impression’ is important. Some properties show the immediate ‘pride of ownership’ while others are neglected and in much need of repair & maintenance.
We appreciate you reporting your income and expense information. Each park has its own Rules and Regulations which each tenant signs and agrees to adhere to upon being accepted as a tenant. The manager is to enforce these rules in order to maintain order and cleanliness within the park. If rules are not adhered to the Rules & Regulations will clearly spell out the various remedies available to the Landlord. Amenities – you can also have additional amenities such as a meeting hall, a pool, laundromat, additional RV parking and charge rent for all these additional services. There are a number of things you can do now to lower your bills and save you some extra spending money down the road.
Proper Mobile Home Park Evaluation Summary
Also, suppose that the park is currently paying for water and sewer and this expense is running approximately $30,000 per year. You know that you could install water meters and pass this expense on to the residents. You could very well purchase this park and realize the return you want very quickly in situations such as this. If the rents are under market or there are expenses that can be reduced or other ways to increase the net income with minimal work and cash outlay you might pay extra for a park if it otherwise meets your investment criteria. Another benefit of mobile home parks is that in most cases you have individuals that own their own homes and will tend to take care of the home as well as their lot. Since you are renting basically the land and the utility connections, there is not near as many things that your renters can do to cost you major repairs.
The bottom line is that extremely low expense ratios should be treated with suspicion until they can be fully vetted. Even though the seller may have insurance, it’s often the wrong amount of coverage or missing essential coverages altogether. We’ve seen properties with $250,000 liability limits and missing property insurance altogether. You only get what you pay for, and these sellers aren’t paying for much. Instead, get with Kurt Kelley at Mobile Insurance in Houston (that’s who most people use) and get some accurate numbers based on actually protecting your investment. They self-manage the park, mow the lawns and do their own repairs on water, sewer, electrical and other issues.
Valuing a Mobile Home Park
I do not even look at parks that I can't turn into at least a 10% cap rate. The range of cap rates on the market today fall in the 3% to 11% range with most parks falling into the 7% to 10% range. When purchasing a mobile home park that has vacant lots which are ready to be occupied, what value, if any should you place on these lots? We just came up with the value we are willing to pay based on the NOI and the cap rate we are looking for. So, unless these homesites will fill up with minimal effort and investment, I would not place much of a value on them at all.
They include repair, electricity and monitoring, typically on a monthly basis. One time we looked at a mobile home park that had a lift station . We went to check it out and mom and pop had never paid the power bill and the unit had been out of operation for years. In addition, since mobile home parks are largely a land investment and often located on major highways, some parks are sold for commercial development.
For example, think about how much you pay weekly for gas in your car or groceries for the family. It might be worth setting up a carpool system with a neighbor or friend. You could also try starting a community garden if your mobile home park allows it.
A home is being rented for $425 per month and the lot rent is $200 per month. I will approach the current renter and tell them if they continue paying rent for 3 more years, then I will assign the title over to them and the home will be theirs. In the rent-to-own agreement, I specify that the lot rent is $225 per month(not $200) and after 36 monthly payments of $200 plus lot rent, the home title will be transferred to them. While sellers can be wonderful people, their financials are not to be trusted without extensive verification. There are many expenses that can be missing – and these can have a huge impact on your net income and property valuation.
Sure they may flush things down the sewer and let the water run, but they will not be putting holes in the walls and floors or spilling things on the carpet as they will in your apartment rentals. You rent the land and do not have to fix leaky kitchen faucets or toilets. Another reason for the lower operating expense ratio for mobile home parks is that you are not responsible for painting, cleaning carpets, fixing windows, and all the fun jobs of the apartment maintenance personnel. You are typically only responsible up to where the home connects to your utilities and the maintenance of the common areas. Place & Sell – these pads can then be occupied in several different ways. One is to advertise spaces for rent and wait until homeowners apply for occupancy or you can purchase new or used homes, place and hook them up with all services and then sell them on a Rent-to-Own contract.
That said, both parks though different in appearance can provide the same returns at the outset. However, over time the neglected one will have need of much more cost in repairs if not regularly maintained. Another consideration is the service of utilities to the park which is also closely related to location. Most preferred is one that has full city services such as city water and sewer along with garbage pickup, hydro and cable TV. These can be more expensive at the outset but translate into easier management and upkeep.
Items like replacing all the water lines or sewer lines for older parks, resurfacing the roads, topping all the trees, are large expenses that can occur in the future and they should be budgeted for. While they are not expensed for income tax purposes they are capitalized and depreciated over 15 years or so, and are therefore real costs. I would include at least 2-3% of gross income as a Reserve for Capital Improvements in your numbers when determining the value. At least 25% of the population can afford no more than $500 per month for housing costs.
Hopefully this has given you some insight and interest in the mobile home park space. I’d love to hear about your experience in this asset class or other questions you might have. The economic impact of moving a home ranges in the $4,000 - $6,000 price range. Although individuals have been known to attempt moving them on their own with the largest vehicle they can find, in most cases this is not only illegal but extremely dangerous. Even if the home is sturdy enough to withstand the road trip, significant damage can be done to the home or through accidents caused by inexperienced movers as to render this a completely bad idea.
In this book, author and investor David Greene shares the exact systems he used to scale his real estate business from buying two houses per year to buying two houses per month using BRRRR. As you will read in any appraisal handbook there are 3 basic valuation methods. However, with mobile home parks two of those methods, the cost and sales comparison methods, have some flaws that skew the results. The cost method does not take into account the business component of the business or occupancy levels.
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