Convince me NOT to invest in a MHP

Realtor · York, PA · Member since 2020 · 140 posts · 28 votes

I'm trying to find good reasons not to invest in MHPs. If 25% or less of the homes are park owned and there is cash flow, what are some valid reasons why I would not want to invest in a deal like that besides being in a market where I don't have a big enough pool of people to fill the remaining homes?

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Frank Rolfe

Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes

Do not buy a mobile home parks that has:

1) No operating permit as evidenced by a Certificate of Zoning.

2) No demand as verified by running test advertisements.

3) Failing private utilities unless you have an approved plan to fix them and can afford to do so.

4) Dirt roads unless you have a lender that will finance it, or the capital budgeted to pave them.

5) One individual (other than the park owner) that owns a huge number of the homes (most lenders will not make a loan if one person owns more than 5% of the homes).

6) Does not have a clean Phase I environmental assessment.

7) Does not have a clean survey.

8) Does not have a clean title.

9) Is overpriced in such a manner that you will not make money with it based on reasonable performance.

10) Does not have a healthy risk/reward relationship (buy low risk with high reward and avoid high risk with low reward).

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
5y
Originally posted by @Nathan Barshinger:
@Jay Hinrichs
That's definately understandable. Better to have a low maintenance, smoothly run park with lower returns than a high maintenance park even though it has higher returns.
its not that it cost more to run.. its the risk of systems failures and having to upgrade to modern standards thats the risk

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
5y
Don’t forget changing zoning/codes/laws.
Last month I sold a seasonal lake cabin in MN I bought 25 years ago. To do that I had to have the septic system inspected. (It’s really 2 cabins on one system, but it’s a sink, a shower and 2 toilets.) to sell a property in Mn you have to have the septic system inspected the inspection says tank is “like new” good news But…
Guess what happened in the last 25 years? The health department decided your septic tank opening can’t be within 50 feet of your well. Kind of a problem when the parcel is only 75 feet deep and the well is in the middle of the house. There’s a lake on one side and a road we don’t own on the other side.
Luckily we were only about 10 feet in violation so we were able to dig it up and turn it diagonal for a few thousand. Otherwise we were told we could keep it in the family or remove the septic system. Ps. It’s a couple miles to any sewer lines.
This is likely something you wouldn’t know until you went to sell your private sewer park and you got the good news about all the upgrades you were going to do before you could sell.
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Mario Dattilo
Investor · Naples, FL · Member since 2009 · 167 posts · 165 votes
5y
@Nathan Barshinger one thing I don’t think anyone has mentioned yet is don’t buy a park you don’t have the time to manage (and manage the manager). Turn around parks do take some time and effort and if you have a full time job you just need to assess your availability to see the plan through.
Mobile home parks can become fairly passive when they are stabilized but the repositioning of the property can be a bit intense depending on what is needed.
If you are buying a park that needs a lot of infill, capital improvements, a lot of vacant homes needing rehab and sale then consider partnering with someone who has the availability and complimentary skills to yours.
The catch with partnering is there is also risk in that so make sure you trust and vet the partner and make sure it is structured in a way that you are both adding value equal to your interests and are not both doing the same thing where you are stepping on each other’s toes.
I bring this up because we have bought parks from people who thought the turnaround was easy and didn’t understand the time commitment required in the beginning. They realized it after buying it and then had to sell.
Alternatives to partnering would be to invest as an LP in syndications or funds that are focused on this space. Same rules apply with vetting and trusting the sponsors.
If you have the availability then by all means go buy them and operate them subject to all the other great caveats that others have been commenting.
Hope this helps.
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