Self Into with a question

[Felipe Soto]

Hi ALL! Just wanted to do a quick intro with a question for anyone knowledgeable in the difference between both. First of all, I’m happy to have individuals to speak with similar interest.

I'm new at Multi-family, yet have spent time educating myself and understanding the ins and outs of Multi-Family Apartment investing for over a year. I’ve acquired wealth through other avenues in insurance businesses and I'm ready to invest in passive income now.

With that said, I noticed that CAPs in Florida are around 5 to 6%. I love the ability to take an apartment unit building by increasing NOI, therefore increasing the value and flipping it back to the market. Of course, it's not that simple, but very possible and done frequently by some.

I'm also looking at a few mobile home parks as well which offer 8 CAPS +/-. The COC return seems better. As a Landlord, I am not responsible for the Unit when buying a Mobile Park vs Owning an apartment building.

Here is my question. CashFlow is Better, CAPS are better., I don't know if it has the same ability to increase resell value through the increasement of NOI as well? Why would anyone do a mobile home vs an apartment just aside from Cashflow?

Thank you

Felipe

[Paul Moore]

Hi @Felipe Soto. I wrote a book on apartment investing in 2016 and I thought I would always stay in that lane. When I discovered mobile home park investing, I was pleasantly surprised at the amount of value add opportunities in the space. They are not as obvious as they are in multi family however they’re very real.

My firm completely switched directions and now invest in mobile home parks, self storage, and light industrial. We have a lot of case studies on the value add opportunities to increase income and expand appreciation in mobile home parks. One dramatic example last year:  Our operating partner acquired a Louisville mobile home park for $7.1 million, half cash and half debt. They had five major value add objectives, and the accomplished almost 4 of them in the first six months. They sold the part for $15,000,000.10 months later. 

Though the size of the profit on that one was unusual, the process to get there was quite repeatable and I’ve seen it done over and over.  

One of the keys to profitability in mobile home parks is the fact that so many of them are poorly run by mom and pop operators. About 85% of the 43,000 parks in the US are owned by small operators who don’t have the desire, the resources, or the knowledge to make improvements to increase income and appreciation.

Many of the improvements are they in the realm of cost savings and the improvements to the park can significantly benefit the tenants.  For example, last year I saw a terrible water leak that was fixed by the new buyer which saved the new owners about $60,000 per year. This translates to over $1 million in increased asset value! The previous owner was making so much cash flow from his old part that he didn’t care about the $5000, or the environmental impact. Well run parks are good for everyone.