BiggerPockets

6. Tax benefits - how might they compare, since the tenants own their units in the MH park so you don't get the depreciation but perhaps more landscaping or different kinds of improvements make up for it?

1: First off, there are MHP's that also sell in the 7 CAP range, but they tend to be very large, and are big money with private financing through pension funds, very strict institutional lenders and the like. So while I could site examples of these, not many of us play in that sand box, and for sure not me. That said, I have friends that do... The CAP rate is really a function of the difference between a prevailing interest rate and the investors expected return on NOI. It is adjusted for the risk factor, or in some cases the higher CAP is really an effect of the sheer number of buyers willing to invest in a particular type of property. Because mid sized parks are not investments in the main stream, they are not 'sexy' investments... they trade on higher CAPs... I can also add value much quicker on a miss managed MHP...
2: Management- While there are some management companies out there... I would say your best off managing the manager. I am operating 4 parks, it will be 5 before the month is out and I spend only a few hours per month in contact with my managers. I site visit my parks every 6-8 weeks if it is in some sort of turn around operation, if it is pumping on all 8 cylinders... maybe once a quarter... maybe less... If the manager uits, you head to the park, put ads in papers, craigslist and send notices to the tenants your looking for a new manager... 50 applications and a few days later your back in business... I just removed a manager at a out of state park, a very complex operation and I was there three days...
3: I run all my mobile homes through another company I have and the income is nominal. The real value is in the parks income being capitalized. That is a 8 or 9 for 1 trade up... So a $1,000 increase in yearly income equals a equity bump of 8 or 9 thousand in the world of 11 and 12 cap parks... there is a expense adjustment that really needs to be made... but we will keep it simple here...
4: Some parks have lots of crime, some less... you will probably get a feel for that on the buy side... I tend not to buy parks with working meth labs, visible drug dealing etc that can exist. I would say, parks that are very poorly managed you need to really watch on the buy side, and inner city parks... they are not all bad, but have a higher level of mischief...
5: Rent increases tend to follow the lead of the apartment buildings...
Tax: Well, your spot on about no buildings to depreciate like apartments have... but I do have infrastructure. Also, the value of a MHP is largely based on the pads being full, which one could demonstrate by showing the sales price of an empty park verses a full one... back to the point though... I have power poles, gas lines, sewer lines, streets, sidewalks etc to value... and they depreciate over a 15 year period... so things are not all bad...

for the record... I also own multi unit housing in Denver... and single family rentals... and I like them as well... but I really like MHP's...

A mid sized park... in my view is between 30 and 150 pads. These fly under the institutional investors radar so your dealing with the regular inverting pool of people. The same people that buy single family homes, duplexes, fourplexes and the like. The purchase cost really depends on the market... here are a few examples...
I bought a park in Lafayette Indiana, good mid west market, 76 pads, of which 3 were stick built rental homes, and it came with about 60 park owned rentals mobile homes. $370,000. If you only sold the rentals for $3,000 each tot he tenants you have recovered $180,000 of your purchase price...
Park in Nebraska, 37 pads- paid $130,000. Increased the NOI by $19,000 in 90 days buy making the utilities a pass through.
Park in Texas, 60 pads, $542,000. Made utilities a pass through increasing the NOI by $47,000. A pad rent increase in the next few months will add another $32,000 tot he NOI. $79,000 total NOI increase in 12 months.
Say I had 5 notes in this park- it would cost me $15,000 to produce the notes, and I would get back about $7,500 in income. The challenge is if I sold the park... I might sell the notes to the new owner for $10,000... if I had increased the parks income by $7,500 the new owner would have paid me $62,500 for the income stream... So increasing the income or reducing the expenses has much more impact than the income on a mobile home note...

So I get to the finish line in many different ways.... The exit on the private financed deals is to refi the park in a year- pulling all of the purchase money back out. Now we all have the property with zero down... It is like a hard money loan, but the lender is your partner...

Vikram- take a look at a 20 or 30 year old MH compared to same age stick built. You'll see the upside difference I'm talking about. They just don't hold up, and are much more maint. I've had a few.

I could control the age by not renewing the lease of a home I do not want in the park. I control the appearance through rules and regulations.

If someone moves in and does not pay I can shut off the utilities, I control the water, with 10 days notice, and evict the home through a lease default.

Jim, I only look at an investment based on its risk-return profile. The less sexy the better as long as it is within my skill-set to execute.

One other question, Jim. How long do you normally hold the property before you sell it? The reason I ask is that you seem to be pretty good at improving NOI within a year or two based on the examples you gave. Do you hold it much longer than that before getting your capital gains out?

Thanks for all your answers, Jim. I can only vote once for each of them although they deserve more. Vikram