Mobile Home Park or RV? Pros and Cons?

Question

Hi BP fam,

I am a rookie that is starting out in the MHP arena and interested in investing.

I have done a bunch of  SFH Rentals, but want to make the jump as I have heard it is a great market to explore.

I recently was discussing a deal with an MHP Broker who had listed a park for sale with both POH and Park owned RV's.

He claimed that the current owner was converting his vacant POH lots into RV lots as you can divide 1 mobile home lot into 3 RV lots and get 3-4 x as much rent/month. His rent roll seemed to support this, however Id rather hear from you guys and get some more objective feed back.

1. Is it better to buy a park that is only MH's or is a mix of MHs' and RV's ok?

2. Does having RV's/RV lots mean you have to have someone onsite at all times to facilitate rent collection as it is a more transient clientele?

Thanks in advance and cant wait to hear from you all!

Shweta Patel · Answer

Thank you so much!

Yonah Weiss · Answer

@Shweta Patel These are great questions you bring up. I have some clients who have both, and the issues I have seen are the following:

1. Make sure you have demand for the RVs before converting. Sure it could be potentially greater rents, but if nobody is going to fill the lots, you have a loss.

2. Check out other MHPs and RV parks in the market, and do rent comparisons.

3. Check that zoning allows for this conversion.

@Ian Tudor May have some more insight, as this is his area of expertise.

Jack Martin · Answer

@Pat G.  you are spot on with the POH income as the bank underwriter will typically only give value to the lot rent, not the POH rental income.  Some underwriters will even discount the lot rent for POHs if the tenant is not seasoned more than 6 months because the tenant does not have a vested interest in staying.  As it relates to RVs, if it's not a Park Model, the bank will either give zero value or discount the income substantially.  Again, that depends on how seasoned the tenant is.

Pat G. · Answer

@Shweta Patel All great advice. One other thing you have to take into account is that with POH (Park owned mobile homes (Rentals) -not RVs) banks and appraisers ignore the income from them completely and assign an value to them based on their age. The older they are the worthless they are. Example a 1970s single wide is worth $3,500 in total and you can't claim the monthly; say $600/month or $7,200/year into the value of the park. The value of the park is based solely on the TOH net income divided by a Cap Rate of say 10% and then take that number and add to it the value of the POHs to get your offer price. WARNING here - the seller and most brokers will not see it that way, but if banks do, you have to side with the bank.

I don't know about RVs and how they value that, but guessing that those can leave easier than a Mobile Home Trailer, I would guess their value would be about the same as as or less than a POH.

Hope that helps

Matthew Paul · Answer

If its a RV park like a campground , they are full time businesses , reservations , hospitality , clean up camp store . Labor intensive . I go to some destination campgrounds and pay $400 for 2 nights 3 days . And have a blast . But these places also have water parks that cost over seven figures

Shweta Patel · Answer

@Jack Martin

Thank you for such a comprehensive response. LOVE IT! I agree, I definitely want to stick with the mostly tenant owned “ parking lots” as they say. And once more comfortable, then seek deals with higher caps/COC because they have room for conversion from Poh to RTO.

And the feedback on RVs was awesome! Didn’t think of it that way before. But absolutely makes sense.

Thanks again! Sent you a connect request!

Jack Martin · Answer

@Shweta Patel Assuming you are interested in the recession resistant cash flow since that is the unique strength of MH/RV parks, the long term goal you should aim at is "sticky" tenants that pay the space rent each month and don't leave.  You achieve that goal by achieving 100% tenant owned homes/RVs in your park.  With that foundation, here is some guidance:

1. Is it better to buy a park that is only MH's or is a mix of MHs' and RV's ok?

An good example of a mix of MH and RVs is when you find a MH park with vacant spaces.  While you are slowly filling up spaces and selling off the homes, it makes sense to garner some additional income from the vacant MH spaces by leasing them to RV tenants on a monthly or seasonal basis.  When you complete the task of filling all the spaces with MH, then leasing to RVs would end.

While MH are typically more permanent than RV, there are cases for RVs where they can behave like MH.  For example, if you have an RV park in a great location where there is demand for permanent tenants, you can convert the "rolling" RVs to Park Model RV's that are essentially a smaller version of a mobile home.  An RV park with Park Models will behave much like a MH park, so you can still achieve the goal of "sticky" long term tenants. Also, if you have a MH park that has smaller spaces only suitable for RVs, then you can convert those spaces to Park Models.

With that said, every park has it's own unique behavior, so there are cases where having a handful of transient RV spaces is actually a benefit to the park.  As an example, in a senior park where a long term tenant moves to a elderly care facility and puts the home for sale. The likely buyer is one of the RV tenants. They already know the park and are next in line to buy a home.  It's like an onsite waiting list.

2. Does having RV's/RV lots mean you have to have someone onsite at all times to facilitate rent collection as it is a more transient clientele?

It depends on location and demand for monthly RV tenants.  An RV park that is 100% transient in a location where there is no demand for long term residents (out in the middle of nowhere, for example) is going to always be a transient RV park. That kind of park will usually rent by the by the night/day/weekend and you would need to have a manager onsite to receive those RV tenants.

But if your park is in a location that would allow you to lease spaces by the month, then you could operate with normal hours.  The demand will dictate whether you can do that or not.

I know some park owners who have RV parks that are 100% rolling stock (no Park Models) and their tenants have been there for years without moving because the park is in a central location and there is high demand.  If they move out, they may not get their spot back, so they stay.

As it relates to your seller's claim that he can convert a MH space to 3-4 RV spaces, that is a zoning issue.  Check with the zoning department and I think you will find that is not even allowed.

Also, be careful buying a park with all POH units.  The value of the spaces (based on the foundation I shared in the beginning of this post) is based on the space rent only, and not the income from a POH.  You don't want to fall into the trap of paying for income that won't be there when you convert to 100% tenant owned homes.

All the best,

Jack

Jay Hinrichs · Answer

yup check zoning first and foremost..one issue is the waste from RV's has many more chemicals.

so for a private system this needs to be accounted for and for city sewer they may have something to say as well.

but tiny homes usually can fill up pretty good

Mobile Home Park or RV? Pros and Cons?

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