Why are park-owned mobile homes generally not desirable?

Question

I must be missing something - is it the additional maintenance/expense component of managing rentals?

Paul Sundin · Answer

The biggest reason is the maintenance headaches.  Sure you have that with apartments, but the benefit of MHP investing in just renting the dirt.  Low maintenance and high returns.

Jim Johnson · Answer

i own- several mobile home parks. That said- park owned rentals change the dynamics of how you operate your community. It is sort of like owning a big, flat apartment building. There are a few differences. An apartment building is made of material that is superior to mobile homes. You have lots of tenants, surrounded by brick or frame construction, and one big roof. Probably one central heating system and water supply system. Mobile homes are not built as well, each has its own roofing, plumbing, heating etc systems. When you own the 'dirt' your big issues involve infrastructure. A sewer line, gas line, water line, road etc... Issues like these are few and far between, so a park can go months without a problem. When you have park owned homes, there are issues all the time form within the homes, as well as the other, infrastructural issues. So your turning units, like you might with apartments, fixing bad roofs, water heaters, heaters, air conditioners, leaking faucets, toilets, bad flooring, broken windows etc... So the management is much more active, and your expense ratios change. Without park owned homes you might run 30 - 45% of your gross on experiences. In general- we notice over 50% of rental income from a mobile home (not including the space rent) goes to maintaining the home over time. More like 60%. Also- the park management ratios- on just space rent go up because of the skill sets involved in managing the rentals. SO your ratios might shift 5-10% to the dark side.

John Vashon · Answer

Generally, it's very difficult to make any money on the homes.   If you are park owner, it's best to ONLY get involved with the homes as a means to generate lot rent and maximize the price of the park.  Someone could "sweat equity" the homes on nights and weekends but when these costs are fully considered, the homes invariably are break-even proposition at best.

Joel Owens · Answer

Hi Amanda,

I have not owned a MHP but I have friends that own them and my mom's best friend has been in the MHP business for about 40 years.

When you just are renting the lot typically the people putting the MH on the lot are home owners making payments on the trailer or won it outright. Since they own it or are paying on it they take much better care of it and they tend to stay for a long time.

Conversely if you own park homes the tenants are renters and tend to trash the homes and not pay the rent. Then they move somewhere else. Parks with a bunch of park owns houses are not desirable. You just want to maintain the grounds and get the lot rent. The biggest expense is utility for water which park owners lately have been separating out to put on the MH owners directly.

Biggest expenses in a park are trailers you own and the utility. My thought is If the park is  mainly not just lot rent but all owned trailers then you might as well just buy a multifamily complex. At least you do not get a trashed trailer where you have to replace the whole thing.

Joe Fairless · Answer

@Jim Johnson really informative - thanks for sharing

Ryan Illsley · Answer

My experience with park owned homes has been great. I rent to snowbirds in 55+ communities and there is little maintenance and the majority of the residents will return to the same home next season. My real problem with park owned homes has to do with financing. I know that Fannie will not lend on a property with more than 15% park owned homes and many local lenders will get freaked out with park owned homes. I own the park owned homes in a separate LLC to avoid this common problem.

Rachel H. · Answer

I know of some parks that have a small percentage of park owned homes. Usually, they have maintenance staff to deal with the upkeep. Though, the majority of their inventory consists of homeowners versus renters.

Hope that helps!

Amanda Hensley · Answer

Thanks everyone - this is great info.

Harold Anderson · Answer

I also have not owned in a MHP but we have a double wide on 6 acres which attracts renters who tend to keep things very neat.  Maybe we've just been lucky;-).  I've gone through many MHPs and MHs in them.  Almost all of them require lots of work.  Seems to me that the MHP owner would get the bigger share of profits than an investor owning on a rented space.

John Chapman · Answer

I've never owned a MHP, but I've done tons of research including listening to the Frank and Dave series (which is excellent, BTW).  My understanding is that one of the reasons park owned homes don't work is that you're not getting much rent for the trailer itself.  (Again, this is all theoretical and second hand, but the logic seem sound).  Say you're getting $600/month for a home, and lot rents are $250.  Basically, you are really only getting $350/month in rent for the home, which is a small amount to cover maintenance and expenses for a depreciating asset like a mobile home.  Tenants to tend to be lower class and cause much more damage than a typical tenant.  Basically,  Frank and Dave say that if you a MHP and can sell the park-owned homes for a dollar, you should.

Why are park-owned mobile homes generally not desirable?

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