How is your ownership of a lot rent park beneficial to you? Is your ownership absentee considering the fact that you do not own the mobile homes and therefore it requiring less attention? Is cash flow based on the amount of rent and spaces you have rented out? Types of expenses? Please share your experiences
1. Most MHP's are set up where the owner owns the land and rent's lots to tenants who own their own Mobile Homes. IMO, this is also the most desirable set up as you are not responsible for maintenance in the homes. In reality, many MHP owners lease park owned homes to improve occupancy.
2. Although you may not need to focus attention on the homes themselves, it is your responsibility to maintain all infrastructure within the park and make it a desirable and functional place to live.
3. MHPs are valued via NOI and often measured by CAP rate. NOI = gross rents - expenses. Cap rate = NOI/Purchase Price. Therefore, the more spaces you rent out, theoretically the greater the cash flow and park value.
4. I previously mentioned infrastructure as a owner-expense. Some examples of infrastructure would be: paved roads, electric, water, sewage, grounds maintenance etc.. it is essential as a park owner to understand your infrastructure. IMO it is most desirable to be on city water/sewage, but there is a cost associated with each.
Great post Collin,
I will only add in something concerning CAP rates and value.
The income used is called net, though most people would just take the gross and subtract out everything paid out to get to the net number- in fact you do not count principal or expenses (and if your looking at someones books- you do not count capital improvements). There is a golden clue here- many, many sellers move expenses into capital improvements a year or two prior to selling. Some sellers might even have 2 sets of books- one for the tax man, and one for the new buyer. Always look at the income / expense lists and the balance sheets. To be fair, some of this is done at a pure accounting level for 'tax' reasons and not every owner even knows it is going on.
This is why you always see CAP rates higher than prevailing interest rates. If the interest rates were higher than the CAP rates (assuming 20 - 25% down) the investment would not cash flow enough to cover the debt service. This is where some owner carry loans at very low interest rates, thus very low cap rates might cash flow while the loan is in place, but you can never refi them because the prevailing interest rates are much higher. Always value the property on a prevailing rate, not one offered. A savvy investor might look to historical trends to guess the direction of the market. Say from where we are now- rates will go up if the economy gets stronger or if inflation starts in. With each rise in interest rates the cap rates go up, and your property value goes- down. Be advised- buying when interest rates are very low might not be your best move. Run the numbers. Remember if rates go down you might refi- if rates go up- hunker down and get ready to ride out the storm.
You should buy the materials off mobilehomeuniversity.com and attend their bootcamp.
There are a lot of moving parts to the MHP business. Get educated before jumping in.
My 2 cents worth,
mobile home parks can be great investments, but I agree you need to do your research before you jump in. I just recently purchased my first park and there are a lot of moving pieces especially with park owned or financed units. There are some great books on MHP and a lot of great info on here.
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