We currently own 3 mobile home parks. Our strategy for filling vacant lots has been to buy used homes with a certain criteria, move them in and do rent to own on the homes. It has been a huge success, the demand for affordable housing is great in our area. My concern is having too many "park owned homes". I'm wondering how other park owners are filling their vacant lots.
@Mike Gruttadaro I am very interested in your strategy and learning about your success. Do I understand correctly that you have been successful in acquiring homes, but perhaps not so much in the lease to own side of things?
Have you looked into 21st Mortgage CASH program for used homes? I recently spoke with one of their reps and I see some really good opportunities for investors that want to sell their POHs. I encourage you to give them a call. This may be a very good alternative for you.
Would you please share a bit more about your strategy to fill your parks?
What kind of vacancy did you start with?
How many homes per year are you adding?
What is your roughaverage cost to buy, move, setup, and fix homes?
What is the average rent on POHs?
Will capital infusions lower return on cash to the point you may consider drawing the line at some point?
Your thoughts would be greatly appreciated.
Hey @Jeronimo C.
Thanks for your response and interest. We have had great success in both purchasing and leasing. The demand is great in our area. My concern is having too many park owned homes that we have to maintain. We do have terms in our rent to own leasing that passes any maintenance on to the current tenant, however if they decide to move out we are responsible for repairs and cleanup before we can lease the home again. We don't want our parks to turn into something like an apartment complex, from a maintenance side of things.
Thanks for the info on 21st Mortgage. I will be looking into that this evening.
To fill our vacant lots, we purchase used 3 bedroom homes and hire a mover to deliver and set up the home. Once the home has a C of O, we rent to own them at $725.00 per month ($340 goes to lot rent and the remaining $380 is their home payment). The cost to update the utilities on the lot, moving and set up and the cost of the home usually runs us about $30,000. I calculate the return on each lot as
$725 x 12 = $8,700 gross rent per year
$8700 ÷ $30,000 = 29% return
When we started this strategy about 5 years ago we had about 25 vacant lots. We currently have 9 vacant lots and our goal is 3 per year starting this year. Once we have filled the last 9 lots we plan to expand one of our parks. There is an approved site plan for an additional 50 lots. This is where my concern comes in, as I don't want to have, at some point, potentially another 50 rent to own homes. I've considered contacting manufactured home dealers, however a new home costs too much to be affordable for our market. It would be ideal to have a dealer set up 10-20 homes and sell them directly the tenants and finance them, taking us out of the picture, I just don't know if that is feasible
Let me know what you think or if I can clarify anything.
@Mike Gruttadaro , I love that you are making this happen and appreciate you are willing to share your experience. I think I understand. Your plan to lease to own homes is working out great, but with your goal to expand you'll ultimately end up with 'still too many POHs', despite your past success. Have you had many of the new tenant/buyers move out? If so, that is definitely a red flag.
Here is something to consider. In theory, those added POHs are also contributing to your overall park expenses. If you account for those expenses then your return on cash would be lower than what you are calculating. If the overall return on cash on the park is being increased by adding homes, then you have a great thing going. Obviously when you do this you also increase NOI and market cap. However, if your return on cash is decreasing as you add homes then the math gets a little more complicated.
I bring this up because I am evaluating a similar situation. I found that I only want to add a certain number of homes at a given $/home because my return on cash diminishes the more homes I add. Despite this I still find it beneficial to add a number of homes because of the increase in NOI and market cap.
As for expanding an existing park, I think you'll find your return on cash will get a big hit. I don't really have any numbers to share, but say you spend $15K per lot to develop roads/utilities and $30K to bring homes, then your return on cash could be below 10%. Getting loans to develop lots seems to be a bit difficult these days. On the other hand, if you were to build storage facilities instead you may be able to get bank financing and leverage the bank's money to maintain a healthier return on cash. If you are not into storage facilities, then why not take that cash you would use to develop lots and use it instead to buy another park for way less than $45K per lot?
Please continue to share. I'd love to know what you think after talking to the guys at 21st. They have three types of programs they call CASH. One is for used homes, one is for new homes and one is for rentals. It seems to me they do work with manufacturers to move homes to parks much in the manner you eluded to in your post.
Looking forward to learning of your continued success!
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