I have some low-income apartment rentals and I am interested in getting into mobile home parks. I have a park under contract with a business partner who already owns a small park in our area. The park has 30 park-owned homes and 5 empty lots that need to be cleared. I understand the idea of selling the POH's and getting lot rents, but I am wondering if that is the best option in my area. Almost none of the parks in our area have any tenant owned homes, so finding lot rent comps is difficult. My business partner owns all the trailers in his park and rents them. The argument is that the headache and expenses are too high for the park to own the homes, but my business partner has not had that experience in our area. Even without any marketing, there is always a waiting list on these homes, and it only takes a few hundred to turn one over, while they rent for $400-$550. His experience is that the repairs are so cheap that the expense ratio is lower than other rentals. The few people I can find paying lot rent in my area are paying $100. The numbers seem to make sense to keep the trailers and rent them out, though I know the overwhelming consensus is to convert them to TOH and collect lot rent. Is this simply because of the headache, or does the math actually make sense? If the math makes sense, is it location based, and could it still make sense in our area to keep the trailers? Also, if we sell them, how do we decide lot rents since there are few comps? Thanks!
Parks with 100% Tenant Owned Homes are easier to manage, have a much lower expense ratio, and are a higher quality property because your tenants have pride of ownership of THEIR HOME.
$100 lot rent is dirt cheap and I would not buy a Park with lot rents that low. Get very comfortable that is the number. Call all the big MHP's in your metro area and say, "Hey, I am buying a new 3/2 singlewide and want to move it in - what is your lot rent?"
Finally, I have to ask - I hope that your contract with this Park is not based on only the income from these mobile homes? It is supposed to be based on the lot rent + the value of the mobile homes. See my post on this here. If your offer is based on lot rent + home rent then you're over paying and traditional financing can be difficult.
Thank you for your reply! I saw some posts about valuing parks when I was researching this that had an equation to figure value. I'm unsure how to use the formula in this scenario since there are no homes on lot rent and I can't find comps in this area. We discussed charging $195 or $200 for lot rent if we sold the homes, but at those prices the numbers make more sense for us to keep the homes and rent them out.
We did use park income to value the property, but I don't think our valuation is a problem. Just to give you an idea, it is 30 trailers and 5 empty lots. We are under contract for $320k. Total income is around 11k, which we think we can increase because rents are below average for our area. Even at an expense ratio of 50% the cap rate is roughly 17%. If we use the lot rent of $200 and use the formula it's 30 X 70 X 200, which is $420. Even a low valuation of the trailers at $5k each adds another $150,000, for a total value of $570k. Either way, this looks like a good deal. Also, we are purchasing a well that services 26 of these units, and gets another $40 per month, plus a $100 turn on fee. Trash is paid as part of the taxes, so we are thinking of also adding another $10 or so for trash on each unit.
But this park, and my partner's smaller park in the area run on very low expense ratios with 100% park-owned homes. I think that's my confusion. Everyone is saying it is too expensive to own the mobile homes because of upkeep, but it doesn't look like it is in my area. I feel like I'm missing something. These trailers are so cheap to fix, we could gut and redo each one every time we turn them over and still run on a 50% ratio. I think we are confident that this is a great deal, and we aren't worried about financing. We are just trying to figure out how to manage the property and what model to use moving forward.
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