Hear me out! I've read the articles and forum posts on developing mobile homes parks and understand why they aren't economical in this day and age, how most townships won't work with you, how the demographics don't work in areas where it's economical, etc... and I agree!
I've run into an unusual circumstance and can't help but evaluate the idea of mobile home park development scenario. I'm looking for input and feedback from commercial investors/developers/operators as to why this is a bad idea - or maybe how it could be feasible. I understand that for most mobile home park investors, the value is in the easy (or relatively easy) upside potential of improving the operations of a community. Development is a lot more work and risk compared to this contrarian model and simply isn't worth the effort even if it is feasible.
Here's a general overview:
- 130 acres of land split between two parcels
- previously operated as a golf course until the owner passed away; it has since been shut down
- already has a septic system for the club house/restaurant that has been maintenanced regularly (not sure how many homes it could sustain)
- land was evaluated by a developer, but was written off due to a lack of public water/sewage
- township told me (not in writing) that public sewage and water will likely go in within 5 years
- the land is aesthetically pleasing with rolling hills (slight grade) and a few ponds
- well off financially; want to sell but are in no hurry; they are considering a few options
- willing to work out flexible terms: owner finance, lease, lease option
- require that in the event of a lease or payment delayed owner finance situation, that the taxes are covered
- 2 minute ride to the highway
- 11 minute drive to a Walmart Supercenter
- $93,000 median home sale price
- one hour outside a major metro
- 6.2% unemployment rate
Startup Capital Required:
- Property taxes through-out development of first phase of MHs until income producing; then split profit, begin payments, etc
- Engineering plans for 50 homes (expandable to 200 based on demand)
- surveys, environmental assessments, permitting
- designed to eventually tie-in to public water and sewage
- Construction of lots, roads, and foundations
- Purchase of new homes to be sold off
I believe there is a significant demand for a family friendly park, retirement community, or both.
It would require a lot of capital to start, but still only a fraction of what would be expected if trying to develop a parcel with less negotiable landowners.
Could this work?
Absolutely! I know lots of folks are against developing parks but it can make sense. I wrote an eBook on the topic and will send it to you.
The questions isn't whether this is a bad idea or not, its a question of whether if it is worth it for the capital that would be required and if you couldn't use that capital for better returns in other investments sooner and not go through as much headache with the development of MHP.
I would be looking more for MHP's that are already established with potential room for development in adding spaces...all of the big REITS are doing that a lot more frequently to keep pushing potential for growth and addition of spaces.
As you have already stated, this is more than likely a bad idea, unless the stigma of parks change here soon..then development will be a lot more attractive for a lot of investors and this would be a potentially good opportunity. as this current situation stands, it seems like its a little far from a metro to attract enough people to bring in homes/move into new singlewides that will cost 25k and up. Also you will be on private water/sewer for the foreseeable future so that makes it less attractive in the exit plan of the development. unless it was public water/sewer and the city was going to pay for it; it makes it very hard to develop a park based on the economics of it. If you think you can do it and make a good return, then go for it.
@Joseph Sangimino anything is possible.
What makes you think there is demand for a park in this area? While I agree with @Ryan Groene that an hour drive to the major metro puts you outside the idea commute radius, are there any major employers closer or more affluent suburbs of the metro area that need to employee firefighters, nurses, police, tradespeople ect..? Have you run test ads? Getting a handle on the demand in the market is step one. Housing prices in the low $90k doesn't bode well for a park.
Moving to the supply side, how many other Mobile Home Parks are in the area? What type of living conditions do they provide? What is available in the SFR market? If you can provide a better home for a comparable price (ie the $90k median home price) You could have inroads.
You came up with a pretty good list of capital requirements, but didn't put a price tag to them and tie them to time. How much will you need day one, year one, year five?
@Joseph Sangimino Depends on the local government. You'll have to check with zoning to see if this is possible. As a general rule of thumb, the closer you're into a city the less welcoming they are to mobile home parks. Good luck!
Thanks @Belinda Lopez I’m excited to read it!
@Ryan Groene You make a very valid point that it’s not necessarily a bad investment, it just may not be as good of an investment as putting that capital to work elsewhere. Its actually more of a manufactured housing development play than a conventional mobile home park model – with the exception of the cash flow aspect as it’s developed out. Development is a facet of real estate investing that I have little experience in. It would have to be a very long term investment for all involved parties with significant equity buildup to merit the amount of work that would be required :/
Also, it would be designed with valving to tap into the public water and sewer as soon as the township brings it to that area – without any major add-ons other than a short tie-in line.
@Bill F The reason I think there is a demand is because I used to work in that area and have spoken with many of the older residents of the community. A few of them alluded to the lack of affordable housing in the neighboring towns which originally spurred this idea. There are two large towns within a 10 minute drive down both sides of the highway with a diverse range of employment opportunities from high schools to hospitals, industrial jobs, shopping centers, etc. They aren’t “major metros” but they are strong little towns with Walmarts and Home depots, etc. There are five mobile home parks within about 30 minutes, four of which seem to be run professionally. They are smaller parks for the most part. I have not run any test ads, but that’s a great idea and would definitely be one of the first steps if I move forward with further due diligence. There are six properties currently for sale within a two mile radius (which brings you just to the outskirts of one of the towns). The lowest list price is 40k and highest is 200k. The houses in very close proximity to the property are mostly 150k+.
Nearby Parks have good occupancy:
- Park 1 – 85/95
- Park 2 – 35/36
- Park 3 – 38/42
You’re right that a more in-depth cost analysis needs performed to annualize returns over at least the first five year. I have a quick estimation that I ran for ballpark figures, but am not comfortable sharing at this point since it’s based on too many assumptions and I don’t trust my own numbers at this point. I’d need to confirm a number of things and then get back to you. For 50 units (expandable to 200), I ballparked initial costs in the $550k range off the bat with about a 16% net return after year 4. That’s not good enough in my opinion to merit the amount of work that would be required. There would be about a 350k gain in equity over 5 years. Id need to find a way to cut the startup capital down, or verify that it could support more than 50 units for economies of scale. I used 50 because I was comfortable with that as a starting point.
@Rachel H I checked with the township on zoning and it’s a MHP is permissible. Excellent point
@Joseph Sangimino ....I would say your initial cost to develop 50 lots is a little low. im guessing your looking at around 20-25k per lot for developing, which is around 1mm-1.2mm if you develop 50 lots. the development cost per pad includes running water/sewer and streets. This doesn't include bringing in the homes yet, which is another 25k to 40k*50 lots=1.2mm to 2mm. All in development cost on the low end is 2mm or so. Then on top of this you have the purchase price of the land...
The reason i say you have to bring in the homes is because even if there is demand, most tenants won't bring in their own homes because they can't afford it. so you either have to move them in yourself or buy new homes/use the CASH program with clayton(if this works in your area). You won't be making any money until you get everything developed and homes in there, which is probably another year or so.
@Joseph Sangimino You are going to find it near impossible to find a lender willing to do a construction loan for an MHC. So you will have to either have deep pockets or have a group of investors willing to wait 5+ years to see any kind of return (historical lease up periods for new MHCs). At 50 sites your going to need 70%+ occupancy to obtain any type of traditional financing.
I can’t say I’m familiar with your market but 200 pads on 130 acres seems extremely low. I know up in your area parks are less dense than ours in FL, but I’d imagine you could at least get 4-6 pads/site. If you don’t develop the entire community but have permitting/approval for significantly more units, your exit strategy will be far better attracting the bigger players to pay a premium for the upside potential.
A client of ours recently tore down and rebuilt a small MHC in central FL. There cost for the infrastructure (new sewer/water/electrical/roads) was about $15k/site. This does not include the home, pouring a new pad, clubhouse, amenities, or cost to acquire and demo the existing community. And this is a dense community @ 8-10 units/acre so the roads and lines aren’t running very far, keeping material costs lower.
Although it may be feasible and eventually profitable, the cost of capital, time to lease up, and overall economic risk during that period would make this a non-starter for me.
Would this location happen to be in Westmoreland county, East Huntington Township? Private message me if you'd rather not say publicly.
Not sure if it's been mentioned, but what is the new construction market like in the area? What about doing a lease option or wholesale deal, and selling the land to a developer? Sounds like the land may make a desirable location for a subdivision of new homes, if the market in the area permits... just my .02
@BJ Hibbard That's a good point. However, there's a commercial grade septic on the property already for a building that used to be a restaurant. The idea was first to determine how many units the current septic could sustain and develop out as those units first. When laying the new pipeline infrastructure, install valves and futures to make the tie-in to public sewage easy once the township lays the lines. Develop out the park further from there based on demand. A lease or lease option on only the acreage used would be necessary to make this work I think.
@Phil Rogers The owners said a few developers looked at the property, but backed out due to the target sales price not being able to sustain the installation of separate septic systems. I imagine it will be a lot more appealing once the township installs sewer lines.
@Ryan Groene My biggest concern would honestly be not being able to sell the homes off very quickly. I'm familiar with the 21st mortgage cash program, but have never personally used to sell off MHs. I dont have a good gauge on the timeline involved. I assume it would take years to sell them all off :/
A wholesale or partnership with a developer is not a bad idea.