Self Storage vs Mobile Home Parks

20 Replies

Hey BP family!  I wanted to reach out to the community to ask I feel like a question that has been asked multiple times by those investors wanting to expand into bigger and higher cash flowing markets. Self storage versus mobile home parks I want to get everybody’s opinion because it something I am diving deep in at this point but having never done it i’d like to hear from those who have hopefully done both and which direction they recommend to go. I’m very curious about getting funding for both types of investment deals. I’ve got cash But would love to continue to leverage I need to scale is that possible with either of these types of investments. I would love to hear from all of you thank you! 

Both can be great but I would argue that Self storage beats MHP's!  The income to expense ratio is lower, there's no tenants to deal with and so "evictions" aren't needed are two big reasons but there are many more.  Alex Pardo hosted a Self Storage vs. Mobile Home Debate for charity a few months back on his FlipEmpire podcast that you might valuable!

@Lionel Henderson I've known investors who have owned and sold mobile home parks only to get into self storage. For them, owning and operating mobile home parks were too management intensive. Also, I've heard it's much easier to get financing for self storage versus mobile home parks. Hope that helps! 

@Rachel H. The Financing is a huge part of the equation so thank you for sharing that. And I’ve heard that the management part of mobile home parks can be very intensive. However I’ve also heard that if you hire the right manager you don’t have to worry about anything until you need another. So I see the give and takes. 

Hi @Lionel Henderson . I love both asset types! I've been investing in REI and CRE specifically for a few decades and I've found these are my two favorite asset types. Good luck!

@Lionel Henderson something to consider is that there is a huge barrier to entry for new Mobile home parks. When you buy one you are not going to be concerned about additional supply coming in and decreasing your occupancy. If anything you may see decreasing supply as competing parks get redeveloped into other property types.

Self storage on the other hand has the supply risk where a new facility can go in down the street and pull your occupancy down while they lease up for the next year or two.

We own both mobile home parks and self storage but one reason we have been much more aggressive in buying MHP is for this reason. Demand is getting higher and supply is decreasing. Hope this helps.

@Mario Dattilo Thanks for sharing that! I have a question for you since you own both type of investments. When in comes to 

purchasing  a MHP versus a Storage facility. How you noticed a major difference in the due diligence, lending and underwriting process?

I've heard it can be tougher in the Storage space facility of how lenders view these assets as businesses as opposed to Real Property? And I guess as far as purchasing a value add property in the storage space this can also more difficult?

Thanks again for Sharing your expertise! Look forward to hearing your response.

Lionel Henderson

@Mario Dattilo hits the nail on the head.  Both are attractive for similar reasons, but the high barriers to building new MHP means a new park will not be built across the street from the one you just acquired.  

I drive down a rural highway on the way to church every week and in a 15 mile stretch there are several brand new SS facilities that have been built in the last 6 months.  Imagine if you had just purchased what you thought was an underperforming asset with the intent to improve the marketing, fill up units, and start raising rents, only to have several new facilities pop up in your neighborhood.  Blows your whole pro forma.  New SS facilities are being built on every corner USA right now, so although they have attractive performance, just be aware that competition can be built quite easily. 

Don't take this wrong, I love the intrinsics of SS as well. It's just that MHP doesn't expose you to the risk of a competitor being built across the street. And yes, MHPs require much more intensive management, particularly if you are acquiring value-add parks with vacant spaces, POHs, deferred maintenance, etc.  However, once you finish repositioning the park, you'll end up with the most stable cash flow in real estate, that doesn't take near as much energy to maintain. 

This question has already been answered covering all of the bases. The one thing that I will add, though, is regulatory issues. Specific to MHPs in Pennsylvania, where I live and primarily invest, the state EPA has mandated that parks with 15 or more pads must be tied into public water and sewer. Parks owned prior to that mandate are grandfathered in so they can continue to operate, as is. Which makes many smaller parks obsolete and not worth pursuing depending on where they are located.


This is an interesting question! MH parks would have many more details to manage and larger expenses. It really depends on how involved you would want to be and what you would outsource as far as management. They are pretty different avenues. Look at your current business model and where you are going. MH parks with all the tenants, leases, utilities, vacancies, hauling out old and bringing in new...also depends on start up costs, location, demand. I would lean towards storage units. 

@Lionel Henderson generally due diligence follows the same process (financial->physical->legal) on both. There are some unique aspects to both. For storage you’re looking at the market occupancy and historical more like a business but you can still gauge lease up and other operational things like you do in MHP.

There is a really strong appetite for both property types and I don’t feel one is easier than the other. The lender will not only be looking at the asset but also the experience of the operator/sponsor. As you build up a track record lending becomes much easier regardless of the property type. You can always bring on an experienced partner as a co-sponsor to help obtain the debt.

Underwriting is a little easier with MHP since the residents are typically longer term occupants and when the property is stabilized it gets pretty boring. Storage can fluctuate in physical occupancy month by month.

Side note… storage has some very professional 3rd party management companies that can be hired for larger facilities. This is what we have done. MHPs are typically owner operated due to the complexity of home sales and infill etc. most people I have talked to that have tried hiring 3rd party managers have regretted it so if you’re going the MHP route plan to be an active operator or an LP with an experienced operator. Not going to buy a value add MHP and be a passive owner.

Over all we like and continue to invest in both property types.

@Mario Dattilo Very strong answers Mario I think you have begun to sway my mind to really start looking Storage units. The properties I have now are passively owned with a great company doing the management for us. Now I live in California and invest in Indiana. I would assume out of state investing for storage units should be just as possible as rentals. Do you have storage units out of state from where you live or are they all close with in your state. Thanks again for sharing I'm really getting a lot out of your knowledge. 

@Jack Martin Thanks for adding that, in fact that was my biggest hang up with even looking at SS is that any body can build across the street and have cheaper options and kill my business. So location would be the highest concern. Or even buying in an area that's established and or purchasing an existing SS. DO you own Storage Units as well as MHP?

@Lionel Henderson we own SS in FL and one happens to be in my city but Because it is 3rd party managed someone on our team goes roughly quarterly. If the building is 40-50k+ sqft you can likely afford institutional level management to run it for you. Using tech you can also manage smaller buildings long distance with a local part time maintenance person.

We own MHPs in 3 states and the closest one to me is 1.5 hours away. They have community managers on site at each property.

Originally posted by @Jack Martin :

@Mario Dattilo hits the nail on the head.  Both are attractive for similar reasons, but the high barriers to building new MHP means a new park will not be built across the street from the one you just acquired.  

I drive down a rural highway on the way to church every week and in a 15 mile stretch there are several brand new SS facilities that have been built in the last 6 months.  Imagine if you had just purchased what you thought was an underperforming asset with the intent to improve the marketing, fill up units, and start raising rents, only to have several new facilities pop up in your neighborhood.  Blows your whole pro forma.  New SS facilities are being built on every corner USA right now, so although they have attractive performance, just be aware that competition can be built quite easily. 

Don't take this wrong, I love the intrinsics of SS as well. It's just that MHP doesn't expose you to the risk of a competitor being built across the street. And yes, MHPs require much more intensive management, particularly if you are acquiring value-add parks with vacant spaces, POHs, deferred maintenance, etc.  However, once you finish repositioning the park, you'll end up with the most stable cash flow in real estate, that doesn't take near as much energy to maintain. 

the fact is in many jurisdictions MHP s have been zoned out IE no more new ones.. were as your correct on SS. 

also depends on area of the country and like with any asset the quality of the asset..  run down ghetto parks in rural America with beat to crap single wides  are not the same as a park that is full of pit set double wides with pride of ownership and the coachs are all owned by the individuals who paid 50 to 250k each.. or like Orange county or parts of CA were the MH might have sold for 500k or more.. your going to get your space rent with no major issues.  with SS though they sure have modernized it.. for me I have owned 3 parks and one SS. the Solid B class park was a dream the C class a night mare never again.  SS was not big enough so I split them into 46 condos and sold them off to house boat folks we made money on that deal as a developer selling off inventory.   Really depends on many factors for both assets.

 

@Mario Dattilo Very cool I'm very interested in diving deeper into these asset types and markets. Your advice and expertise is much appreciated. I would love to connect with you directly also I sent you a request. My goal is within the next 12 month to own a cash flowing SS or MHP you've definitely helped my goals.  Thank You

Hello @Jay Hinrichs if you don't mind me asking what part of the country do you own your MHP and SS?

I try to stay in the B Class areas with my rentals as well unless they are going to section 8. I see now it really does depend on the many factors for both of these assets. 

I see you have a brokerage do you have listings for these types of assets?

Hey Lionel!  I second those on here recommending Self Storage.  I am a big fan of Self Storage as it's been good to me and my family over the past 15+ years.

Sure, there's pros and cons to each.  The biggest PRO is that there's no toilet, tenants, or trash.  And one of the downsides is that Self Storage has gotten quite popular over the last few years and went on an even major tear within the past 12 months.  Yes, there are still deals to be made out there, but the low hanging fruit is gone and you'll have to get off the beaten path and turn over a lot of rocks.

Good luck with whichever one you choose.  And if it's Self Storage, please reach out if me or my Team can be of any help.

Scott

Thanks @Scott Meyers for the info and sharing your experience. I'll definitely reach out to your team. I'm looking to pull the trigger in year and seeing that Self Storage is fundable by the SBA is very tempting having used them recently and seeing the benefits. 

I'll be connecting with you.