Table of Content
The next thing to do is to come up with the anticipated expenses based not only on how the park is currently operating but also based on how the park will operate with you as the new owner. For example, if the current owner is managing the park, then you need to plug in an amount for management and payroll taxes and workers comp. If the park has vacancies and there is no advertising expense, then you need to plug in an amount for advertising. And then, of course, you have the sellers who actually have not been doing the required maintenance, and that’s why there’s virtually no expenses on that line item.
Other on-line sites that might contain random listings are Craigslist, Ebay, and even Youtube. You can consider the possibility of your park being rezoned for redevelopment at a future date. This has become popular with old parks built in town centers that now have land values far in excess of the cash flow value. Years ago the main income was from pad rents where now the value is in building a commercial strip mall or multi-family homes. This has its challenges but also has huge financial gains if successfully brought to completion. We’ve mainly focused on reducing energy bills as these can apply to almost any mobile homeowner, but don’t forget that you can also cut down on bills through small changes in everyday expenses.
Leased land expenses
If you’ve ever had to deal with your pipes, you know there’s an open space under the home where you can crawl. This area can also be a potential pathway for cold air to enter your home . You can prevent this cold air from entering by planting shrubs around the skirting.
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.
Rent Increases
It would value a 100 space mobile home park the same whether it has 100% occupancy or 50% occupancy. Some mobile home parks will purposefully provide you with a cable subscription with hundreds of channels, many that you don’t even watch. If this is the case for you, try negotiating with your park manager for a lower payment option that better suits your needs. You could also request to get a gas, water, and electric meter set up outside of your home if you don’t already have one. Checking in with this daily can help you cut back and alert you when you’re using too much energy.
As the park owner, every time you sell a home and fill a vacant lot in your park you have just increased the monthly lot rent income as well as the value of the park. Another benefit of owning mobile home parks is that you are often in a good position to buy and sell new and used mobile homes. You can often buy homes that people sell in your park, in nearby parks, repos, or even new homes from the manufacturers and place them in your park and sell them at a profit. Although some investors develop a successful model where they own and rent out mobile homes as well as the land, the more commonly held belief is that owning and renting the land only is the best approach. By having primarily tenant-owned and occupied homes, you develop a tenant base that has a vested interest in maintaining their own home and lot as they have something of their own to take pride of ownership in.
Not actually doing necessary maintenance
Common materials used in weatherstripping include foam tape, felt, v strips , as well as tubular rubber, vinyl or silicone, among other things. If you’ve already installed weatherstripping to areas in your home, check again to see how it’s holding up. Weatherstripping can degrade quickly depending on what materials were used, so there’s a chance you’ll need to replace it. Caulk is a waterproof filler and sealant that’s commonly used to fill in cracks and crevices. It’s the material of choice for many DIYers and professionals due to its flexibility and effectiveness in small areas. Make sure to clean the area that needs to be caulked before moving forward.
In addition there is no guarantee that the mobile home park that they move their home to will not follow suit with a rent increase of their own. Location may be the primary way of determining both short term and long term value. If in a well located area the land value alone is always a good investment even if the cash flow from the rental income were to completely stop. This would not be the only reason for buying a park but certainly must be considered.
When the property prices are regularly fluctuating, a mobile home park is a low-risk investment. In addition to low prices, it comes with a range of additional benefits, such as lower repair cost and less competition. In the tough real estate market, investing in a mobile home park is a beneficial deal. From lower cost to easy maintenance and less tenant turnover, there are plenty of perks to enjoy. If you are investing in one, learn about mobile home park expenses and how to value a mobile home park.
In fact, having empty homesites that are hard to rent out will end up costing you money in terms of monthly maintenance and time. I would definitely point this out to the seller as a negotiating point. Many sellers like to say there is upside on all the vacant spaces. However, if this upside was easy to obtain, then the seller would have most likely realized it before selling. In some parks where the investor owns both the land and the mobile homes, the expenses for repair and maintenance on the units typically reduce the cap rate – which increases the value relative to the rent.
Apart from that, mobile home parks sell for cap rates between 8% and 10%, which can be around 10 times the yearly income. When renting a mobile home, the first thing you will obviously have to pay each month is the house rent. If the contract includes paying a fee for late rent, then keep that in mind as well.
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.
We use this information to ensure our commercial property appraisals are fair and accurate. The next time you are driving around and see a mobile home park, consider the fact that even those small mobile home park owners are millionaires. It may give you a new respect for something that you never thought twice about before. Due to the flaws in the first two methods I put all my efforts into valuing a mobile home park using the Income or Market Capitalization method. Under this method I take the Net Operating Income divided by the Capitalization Rate to come up with the Value. While this might sound like a simple process, it can be quite complex coming up with the true Net Operating Income and decided what cap rate to use in the formula.
Don’t need to worry though because mobile home costs are bearable. In this article, you will get a rundown of all the mobile home expenses you should budget for whether you own, rent, or live in a mobile home park. Mobile Home Parks in which you rent the land to the home owners have a much lower turnover ratio as compared to apartments. In most cases, once the home is moved into your park, that home will stay in there for 25+ years and when people are ready to move they will just resell the home in the park and you will have a new homeowner. You may remember these parks from 30 or more years ago as being referred to as trailer parks but then they progress to mobile home parks and now more commonly are referred to as manufactured homes or housing communities. The quality of construction of these homes are now of superior quality as they are built in indoor temperature controlled environments and government inspections.
No comments:
Post a Comment