Mobile Home Park Owners (100 units +)

15 Replies

What are your experiences in owning mobile home parks. What type of expenses do you incur and how quickly do you make your ROI considering you only rent out the land and don't own the mobile home itself.

This is a very wide open question, as the return depends on so many factors.

All property like this will depend on how much you put down, and upside you might create through operations changes. A stable property should return about 15% of your investment in cash, and then you will also have tax benefits for deprecation.  The parks I buy, have much better returns but I look for some sort of upside as part of my entrance strategy. I might look for something more like 30 - 50% cash on cash return at the 18 month mark. If the park is a flip, I might forgo cash on cash and seek equity (value) upside. So I might see a $400,000 park be worth 1mm plus after a few years. Everyone strikes out at this from a different angle, so returns will vary.

@Ajay Virdi brings up a great question!

@Jim Johnson  What % should of gross income should be a threshold for operating expenses in a mobile home park that has 100% park owned homes?

Most articles I read and information is only on parks that are lot rental only etc. 

That depends on the market, age of homes, turnover rate etc. So that number varies vastly. In an average market, with older homes and 20% yearly turnover the additional income from the rental is pretty close to a long term wash. There is probably a little income, but way more management and upkeep. It is sort of like owning a depreciating, flat apartment complex.  Except there are furnaces for every unit, and water heaters for every unit etc... 

That was long winded and not very helpful but background never the less. I take the market space rent and value the community on that number. So if market space rent is $200, and the park rents a home for $400- about $175 of that is probably added to the park operations expenses. So figure about 50% of the space rent if you pay water, sewer and trash. The higher ratio is the added management and maintenance labor. So $100 of the pad rent and $175 of the rental. I know- it sounds high. When a unit turns over it might cost 2,500 - 4,000 to turn it over. Some units will turn over every year- which is very costly in lost revenue and the time and cost to do repairs and the make ready. 

There are some markets, like oil and gas markets for instance that might cash flow like a shedding money tree. I am talking about a regular park, in a regular town. 

@Jim Johnson  

Thanks a lot for responding to my question. It is so weird everything West of here parks seems to predominantly lot rental with a few park owned homes. However in the southeast with maybe exception of Florida most of the parks are on a predominantly park owned home platform. Especially Kentucky, WV, and GA.

You are right though I think the key is market and buying right. So you, for your investing purposes completely stay away from park owned homes?

Thanks again

This is interesting because I've met local owners here in California who own 100 + units, rent out at about $300-$400, the tenants pay their own water bill and electricity which monitored by meters. These guys net about $400K-$600K a year. Guys on here are giving numbers much lower than that. Interesting take 

Originally posted by @Ajay Virdi:

This is interesting because I've met local owners here in California who own 100 + units, rent out at about $300-$400, the tenants pay their own water bill and electricity which monitored by meters. These guys net about $400K-$600K a year. Guys on here are giving numbers much lower than that. Interesting take 

 Do the math. How could they net 400-600k a year, when they gross 360-480k a year?

Unless 100+ units really means 150+ or 200+

I do not do the park owned thing. The operations on a space rent only park is very easy. Park owned parks for me is not worth the headaches. For a few bucks a month, I will just buy another park. I would venture to guess it takes 3 times the energy to operate a park owned community. 

@Jon Klaus   Yes 100+ is up to about 400 units. A local owner here in Fresno actually does $470K a year on 105 units space rent only. Space rent ownership seems more lucrative and less stressful than a owner who owns the home as well wouldn't you say?

" Space rent ownership seems more lucrative and less stressful than a owner who owns the home as well wouldn't you say?" 

I'll defer to Jim on this one, and he just answered it well, above. 

@Jim Johnson Can you define "Park Owned parks" please? Thanks

@Account Closed  said MHPs with mostly Park owned units are usually a lot of work and high turnover. With Park owned units you have the added cost of up keeping the mobiles. Also since the mobiles are park owned it is easy for tenants to just pick up and leave. The tenants in MHs, especially park owned home renters are lower tier, and are likely to cause damages to the mobiles, especially since they do not own them.  Most savvy MHP investors try to avoid Park owned homes for this reason. 

@Andrew Warner   Couldn't agree more, thanks for your response.

Hi All:

I just read all your comments and have a question around MHP expenses.

I am running numbers on a MHP that rents all the pads out and the average operating expense ratio is between 45-55% over the last four years. Is that acceptable given everything is separately metered and renters pay for all utilities? What kind of expense ratio is acceptable for a MHP, on average?

Any insight would be great!

Thanks!

Rohit

Join the Largest Real Estate Investing Community

Basic membership is free, forever.