Looking at purchasing a 8 unit mobile home park. Any advice?

[Allen Smith]

New to the multi family investments. Anyone have advice on pros and cons of manufactured homes? 8 unit 18 bd-12 bath opportunity.

[Nick Schoch]

As others mentioned, whether the investor owns the home or just the pad is an important question when evaluating a manufactured housing community or "mobile home park." Lenders generally prefer to lend on manufactured housing communities where the investor owns just the pad. 

For example, review Fannie Mae's MHC financing guidelines. They prefer to see no more than 25% "tenant-occupied homes." In other words, Fannie prefers to see that the investor owns less than 25% of the homes.

Other lenders will often exclude the incremental rent from renting the home above the base pad rent. The idea is to limit exposure from underwriting potentially volatile income associated with tenants that don't have as much skin in the game. Tenants that own the improvements tend to stay longer since it's harder to sell or move the home.

If you own the homes, you're basically operating an apartment where you're still fixing toilets and other issues that can arise from the improvements. On the other hand, if you only rent the pads, you're basically a ground lessor that only has to worry about the common area improvements like roads, utilities, and amenities (if there are any). 

One last thing to consider is sewer/waste lines. Many smaller MHCs/parks are located in rural areas without access to municipal sewer systems. As such, they have to rely on septic systems that require more maintenance. When lending on communities with septic systems, many lenders will hire an inspector to evaluate the condition and remaining life of the septic systems as this is a common issue for older communities. A smart investor would be wise to evaluate this as well.