Real Estate Agent · Alpine, CA · Member since 2019 · 12 posts · 2 votes
I've been trying to analyze mobile home parks. I'm not sure about how to consider a park with a large amount of vacant park owned homes. I realize it would depend on the condition of the homes and vacant homes would probably be in need of rehab. With a park of 90 spaces, 25 rented and 25 vacant homes I have to wonder is this situation an upside or a liability? The broker stated that the park was in this condition do to neglect by the owners. I was hoping for someones opinion on this situation.
@Michael Gorence I like mobile home parks. Renters pay for the living space, so they generate nearly as much in rent as a site built home. That sounds like a lot of vacancies, which tells me that poor management is the problem. Verify what the normal vacancy rate is for that area by entering the zip code on BestPlaces.net Use the left column to find "housing stats" to get the info on vacancy rates. Once you know what it should be, then you can investigate the issue as to why this place is not keeping pace with the norm. If there is high demand for rentals in that area, you have a nice opportunity to turn it around with good mangement. Be careful to calculate in all the renovation costs of the vacant units before negotiating a purchase price. Don't be afraid to negotiate hard to get the price down to a number that works for you. Once occupiable, you can shuffle tenants into the renovated ones, if you want to keep those tenants, and renovate the rest of them. Then I agree with John Thedford about selling the homes to tenants, even if you have to carry the contracts to do it. That transfer's the maintenance responsibilities of those individual homes to the buyers, aleviating you of that expense. Do proper screening when agreeing to sell on contract to make sure they will follow through and complete the purchase. Typical banks do not make mortgage loans on mobile homes older than 10 years old, so you may have to carry some contracts to get them sold. Good luck in your research. I'd love to hear how it goes forward.
Experienced operators I know do not want park owned homes. When they purchase they sell them on rent to own terms. If I was looking at this deal I probably would only consider an offer near land value.
@Michael Gorence I like mobile home parks. Renters pay for the living space, so they generate nearly as much in rent as a site built home. That sounds like a lot of vacancies, which tells me that poor management is the problem. Verify what the normal vacancy rate is for that area by entering the zip code on BestPlaces.net Use the left column to find "housing stats" to get the info on vacancy rates. Once you know what it should be, then you can investigate the issue as to why this place is not keeping pace with the norm. If there is high demand for rentals in that area, you have a nice opportunity to turn it around with good mangement. Be careful to calculate in all the renovation costs of the vacant units before negotiating a purchase price. Don't be afraid to negotiate hard to get the price down to a number that works for you. Once occupiable, you can shuffle tenants into the renovated ones, if you want to keep those tenants, and renovate the rest of them. Then I agree with John Thedford about selling the homes to tenants, even if you have to carry the contracts to do it. That transfer's the maintenance responsibilities of those individual homes to the buyers, aleviating you of that expense. Do proper screening when agreeing to sell on contract to make sure they will follow through and complete the purchase. Typical banks do not make mortgage loans on mobile homes older than 10 years old, so you may have to carry some contracts to get them sold. Good luck in your research. I'd love to hear how it goes forward.
@Michael Gorence It's best to base your offer on what the park is making now, not potential income. Look at the numbers including the income and expenses. Make your offer based on what the park is making today, not tomorrow. Hope that helps!
Thank you everyone for your insight and helpful comments. I will consider each comment thoughtfully. I agree that the value is in what is actually generating income. This was a discussion about a park my brother and I were looking at a ways back and we weren’t sure about the empty park owned homes. I’m sure this scenario will come up again and now I think I have a good idea how to evaluate them.
I agree with @Rachel H completely. The offer has to be based on what the business is doing now. Not what it could be doing once you take on the financial risk and effort to improve it. I see a lot of sellers wanting there to be significant financial value in the fact that they have a lot of room to improve operations and NOI. There is none! It takes a lot of hard, expensive work and risk to bring a park with this much 'upside' to it's maximum income generating ability.
I'd use the 25% rule. If 25% of the park has vacant lots then it's a red flag and I'd want to know why.
I'd be looking at the park manager and see if they are the reason people are leaving.
I would look at the demand and determine if it's just not there and people would rather live in apartments or traditional housing is more affordable.
I personally feel that mobile home parks are attractive affordable housing options in areas where the rents are high and traditional housing affordability is under 20% to 25%.
Example: Here is Southern California, nearly all mobile home parks have 100% occupancy. I've yet to drive through a SOCAL park that was not fully occupied.
I'm sure good management and ownership has something to do with it, but it's primarily because rents and traditional housing is just too expensive. Our affordability in Orange County is under 17%, which is CRAZY LOW.
Lots of park owned homes, vacant homes, and vacant lots = lots of work. Especially vacant homes and vacant lots. You have to get this at a low price with good seller finance terms to make it worth it. The best value add parks just require raising the rents or billing back utilities, with just a few POH and/or vacancies.
Assign no value to the vacant lots. capitalize only the lot rent portion of the rent, then add the value of the park owned homes. The value for each home will likely be $0-5,000.