Hi All -
My company and I are looking to purchase an MHP we've come across off-market. Park is on public water & septic as well as a park owned electric system. We know how to operate on public systems however we've never owned a park that has park owned electric or septic systems and as most of you are aware - we've heard its a serious issue. I had a couple of questions for the more experienced MHP investors here. I've listed the questions below and I hope you guys have a chance to answer.
- 1. Can we convert the park owned electric system to either a public or private company who would assume responsibility for all the lines as well as direct-bill the tenants and if so how much would something like this cost our ownership group?
- 2. Can we convert the park from a septic sewer system to a public sewer system and if so how much would that cost our ownership group?
- 3. Also - About 30% of the pads in the park are RV pads. Do you guys know if it is possible to convert these to MH pads? If we would lose some pads due to size concerns that would still work. If this was possible how much would something like this cost?
Thank you in advance.
Looking forward to hearing from you all.
1. You would have to speak to the electric utility to see if they would take it over and at what cost to you
2. Similar w 1. Contact the town or city that runs the sewer district.
A- is there public sewer to tap into near the property
B. Can you connect and what is involved/cost to connect
C. Guessing this will be a zoning issue and or what the park is legally designed for. Is it all mh and the owner brought in rv or is it zoned my/rv.
Solid answers from Chris above. To add a little more:
1 - Although it might be possible, it's unlikely that an electric company would do that. The way to get comfortable with underground electric is to take the time to find the electrical contractor in the area where the park is located who is an EXPERT in mobile home park electrical, and in the best case all they do is park electrical. A contractor like that has seen everything and will be able to give you a good indication of the condition and risk you may be exposed to as you own it. You can find that guy by calling other parks to find out who they use. Call them all and you will hear the same name over and over. That's your guy.
2 - This is always possible, but not likely to be worth the expense. The research may be worth doing, just so you know how far sewer is from the property and what it would cost to hook up, for long range planning. However, as long as it is septic (not cess pools or lagoons) it would make more sense for you to become educated on septic systems and how to maintain them. Once you understand septic systems, you won't be so afraid of them. Surprisingly, the NOI on a park with septic can be significantly higher than one with sewer, if your state allows you to be reimbursed from the residents as the owner of the sewer utility. BTW, you can find a good park septic contractor the same way as the electrical above.
3 - There are 3 main issues with converting RV pads to MH. The first is zoning. If those particular pads, or a % of the park that would include those pads are zoned for RV only, you will have to have that changed to MH. Second, the electrical wires that supply RV spaces are typically smaller than those for MH, simply due to the fact that RVs require less amperage than mobile homes do. If that is the case, you cannot simply install a circuit breaker with a higher amperage, since the wires will not be adequate to carry the load. However, if the park electric was installed with conduit, that is something that can be easily remedied by replacing the existing wires with a larger size. Third, the size of the space may be too small for MH. All three of those items can be overcome, but consider the cost, the time, and what you get for all that. It may be smarter to keep those spaces as RV spaces and spend less money and time making the spaces extremely attractive. Add a ramada/picnic area, built in BBQ, patio or shade structure, etc. Also, consider bringing in park models. If you fill those spaces with park models, you won't have to change anything and once you sell those to residents, they will behave just like a mobile home. Plus you won't lose spaces. Getting rid of spaces is one of the last things I like to consider, since it permanently removes the income potential. Google "Park Model RV" and that will likely be a solution to consider.
All the best,
Thanks for your help Jack. I appreciate all the detail, myself and my partner are working on getting educated on septic systems as well as finding an expert / consultant so we should be able to stick to that.
We just found out that the park is actually on master metered electric and not on the parks own electric. It’s an off market deal that we just received so we’re still gathering information. What should we do about the master metered electric? I spoke to the electric company and they said it’s going to cost over $150K to submeter it, what would you suggest? We really don’t don’t want the liability and the hassle of master metered electric.
Unless you submeter the electric, you won't be able to control the usage by the tenants. The only way to accommodate for that is to charge a monthly utility reimbursement to each tenant, on top of the lot rent. The challenge with that is that one tenant may use more than another and some months will be higher than others, so there's no perfect way to solve for that, except for submetering. However, there are a lot of parks like that, particularly in the RV park arena, so it's not a deal killer. You just need to make sure there is accommodation for the reimbursement of electric so that cost is paid by the tenants. Also, as you do your electrical inspection, see if there is a mechanism in place wherein you can shut down portions of the park, rather than the entire park, in the event a repair is needed.
@Jack Martin Understood, so I am assuming you would say that the initial cost of submetering would be worth the price. Raising the capital isn't hard for us, so I think we're going to budget it in our initial CapEx budget.
It really depends on the park. I wouldn't submeter a park simply because I prefer it that way. It would have to make sense with respect to creating value in the deal. Any capital improvement you make on a park should have direct impact on value. If there is no impact to increased NOI or back end value of the park, it would not make sense to do the improvement.
With respect to a master metered park, if the park is running just fine and you are being reimbursed for your electrical costs, there may not be a compelling enough reason to submeter. Without knowing all the specifics of the park and the strategy for the park, it is tough to give a definitive answer. This is simply general guidance from a guy who's seen just about everything in the park business.
@Jack Martin We'd gain about 50K in NOI which would far outweigh the costs. So I think it is worth the investment.
That would be a compelling reason to spend 150k:)