What Do You Look at FIRST When Evaluating a Mobile Home Park?

[Claudia Rodriguez]

I’ve been spending more time learning from investors who specialize in mobile home parks, and one thing that stands out is how different these properties can be from other commercial real estate.

From the lending side, there are several things I’d want to understand early:

• How many total pads are there?
• How many are currently occupied?
• Are the homes tenant-owned or park-owned?
• What are current lot rents compared with the market?
• Who pays the utilities?
• Are utilities individually metered?
• Public or private water/sewer?
• What deferred maintenance exists?
• Are there vacant pads that can realistically be filled?
• What does the trailing NOI actually look like?

But I’m curious about this from the owner/operator perspective.

For those of you who have purchased mobile home parks:

What are the first 3–5 things you look at when a deal hits your desk?

And even more importantly, what's a red flag that might make a newer investor think twice before pursuing the property?

I’d love to hear what experienced MHP owners have learned that isn't obvious from the offering memorandum.

[Michael Eskenasy]

The first thing I look at is not cap rate.

It’s what part of this park can permanently hurt me.

A bad rent roll can be improved.

Low occupancy can sometimes be fixed.

Under-market rents can sometimes be raised.

A failing private sewer system, illegal pads, bad water infrastructure or a park that loses legal nonconforming status can turn into a completely different category of problem.

So my first pass would probably start with utilities and entitlement.

If it’s public water and public sewer with the utility billing residents directly, great. That removes a lot of mystery.

If the park owns the water distribution, well, septic, lagoon, lift station or treatment system, now I’m underwriting infrastructure before I’m underwriting rent upside.

I’d want to know exactly where the park’s responsibility starts and stops, what the system is made of, how old it is, repair history, compliance history, whether permits are current and what replacement looks like if something major fails.

Buried infrastructure is one of the places an apparently fantastic MHP cap rate can disappear.

I’d also compare master-meter consumption with what is actually being billed back to residents if the owner pays utilities.

If the park buys 1,000,000 gallons and only recovers 650,000 gallons from residents, something is happening.

Maybe it’s leaks.

Maybe bad meters.

Maybe poor billing.

Maybe common-area consumption nobody accounted for.

Whatever it is, you’re currently paying for it.

After that, I want to know whether the park I see physically is actually the park I’m legally allowed to own.

How many permitted pads?

How many are occupied?

How many are vacant but genuinely usable?

How many were added 30 years ago and nobody can find paperwork for?

Is the park conforming under current zoning, or is it a legal nonconforming use?

If a home burns down, can that pad be reused?

If five old homes are removed, can five new homes go back in?

Those questions can completely change what “100 pads” means.

A vacant pad is not automatically an asset.

If it has functioning utilities, legal entitlement, proper setbacks and genuine demand for another home, great.

If bringing a home onto it requires $25,000 of utility work, a variance, site work and six months of approvals, I’m not valuing that pad the same way.

Then I’d look very hard at the tenant-owned versus park-owned home mix.

Tenant-owned homes are one of the things that make this asset class attractive.

The resident owns a structure that is expensive and inconvenient to move, while you own the dirt underneath it. Turnover can be very low and your unit-level CapEx responsibility is limited.

Park-owned homes change the business.

Now you own roofs, HVAC, plumbing, flooring, appliances, turnovers and all the other things apartment owners recognize immediately.

That doesn’t make them bad.

It means I’d separate the economics.

I don’t want somebody telling me I’m buying a 100-pad community when the financial reality is that I’m buying 70 lot leases plus 30 little rental houses.

Even institutional financing looks at that distinction. Fannie Mae’s current manufactured-housing-community program generally limits park-owned homes to 25% of the community, with some flexibility up to 35% when there is a plan to reduce that percentage. That tells you something about how materially the operating profile changes.

Then I get interested in the rent roll.

But I don’t just want “92% occupied.”

I want to know what 92% means.

How many residents are current?

How many are delinquent?

How many homes are abandoned but technically still sitting on occupied pads?

How many tenants are on strange legacy agreements?

What are they actually paying versus scheduled rent?

How much of the stated income really hits the bank every month?

A 95% physically occupied park with chronic collections problems can be weaker than an 85% park where everyone pays and the vacant pads can actually be filled.

I’d also read the leases and rules.

This is one of those businesses where you can inherit decades of operating history along with the real estate.

Residents may have different lease forms, old concessions, unusual utility arrangements or rules that evolved informally over time.

I want to understand what rights and obligations I am actually inheriting, not just what the seller says the current policy is.

After all of that, then I start getting excited about rent upside.

And even there I’d be cautious.

“Lot rents are $150 below market” sounds wonderful in an offering memorandum.

Maybe they are.

Or maybe the nearby park charging $150 more has paved roads, city utilities, nicer homes, better management and a completely different resident base.

I’d mystery-shop the competing communities and understand what the resident actually receives for that additional rent.

The market tells you what the upside is.

The broker just tells you what the spreadsheet needs it to be.

For a newer investor, the red flags that would slow me down fastest are probably pretty boring:

Seller can’t explain the utility infrastructure.

Actual pad count doesn’t match permitted pad count.

Private water or sewer with weak records.

Large utility losses nobody understands.

High park-owned-home concentration being presented as if it were pure lot rent.

Vacant pads being assigned significant value without evidence they can economically be filled.

Old parks where nobody seems certain what can legally be replaced after casualty.

And the big one: a fantastic cap rate where the explanation for why it’s fantastic is basically “the seller just never optimized anything.”

Sometimes that is true.

But if I see an obviously exceptional return, I’m going to assume I haven’t found the risk yet and keep digging.

That’s probably my real first-pass framework:

I’m less interested in asking “How much upside does this park have?”

I want to know “What can I discover after closing that I can’t cheaply undo?”

If the answer to that question is clean, then I’ll happily spend the rest of diligence figuring out how much money the park can make.