All Forum Posts by: Frank Rolfe

If the city has no zoning requirement, what would stop someone from building a park next to yours, and then across the street? What makes mobile home parks valuable is the "moat" of hostile zoning that fends off competition. You will make much more money if you buy an established park with solid existing cash flows at a decent price -- and that type of deal has much lower risk and easy-to-obtain financing.

I've not seen your deal or the location, but I know very few people over the past 25 years who actually made money building parks from scratch (not counting expansions of existing parks). It's very risky, hard to finance, and filling the lots is extremely capital intensive. Just trying to keep you out of trouble potentially.

No, I don't think that FEMA and the Red Cross will pay the park owner for damaged park-owned homes, although I'm not sure because we've never experienced that. We've had damage to park-owned homes before, but never things that could not be fixed within the policy limits of our own insurance. I would imagine that FEMA and the Red Cross would treat a mobile home park owner differently since it's a business and they would assume that all landlords are too rich to quality for such assistance.

But that's just my speculation and I don't know that one from experience.

Kurt Kelley at Mobile Insurance in the Woodlands, TX is the best in the business at finding ways to proactively approach tornado risk. You cannot ever insure the homes enough to pay for replacement. However, in our experience FEMA and the Red Cross come in and gift $30,000 or so to each resident who has a home lost, and that's what fixes the problem. They then also go to the folks in the stick-built homes in town that had no insurance and they give them $30,000 too and tell them to buy a mobile home and put it in a park. Remember that tornados are wind damage, and the whole town mostly has insurance for wind damage and the insurance companies pay the bills to put the city back after a tornado (go look at Joplin, MO for evidence of this). FEMA and the Red Cross only have to help those few people who did not carry wind insurance. We had a park totally wiped out in a tornado, and FEMA and The Red Cross re-populated it.

By comparison, a hurricane is mostly massive water damage, and few people are insured for that. In Hurricane Harvey, for example, there was $200 billion of damage and only $20 billion of that was insured. In a hurricane, FEMA and the Red Cross can't even dent that kind of financial impact.

When you start using any home rental income, you start going down a dangerous path because virtually all appraisers and banks will not use this income in valuations. Then you're in a corner because you not only have to find a lender or buyer but one that is willing to count home rental income (which is rare).

Instead why not raise lot rents up to meet this $200 or so benefit in rental on each home? I would much rather not count any home rental income and instead swap that income for higher lot rents. You can re-set internally the lot rent on the rental homes with no pushback from the resident. For example, if you rent the home for $850, and the tenant-owned homes are at $350 lot rent, why not make the lot rent on those $850 homes $495 if the market supports that (even if you are pushing the envelope) at the time you sell them the home? And then raise the rent on the tenant-owned homes to $395 day one to make the numbers tie for the macro park?

I would much rather be extremely aggressive and creative on lot rent than home rent. One is in the mainstream of the lending world and the other brands your deal as being one-off and hard to finance.

We convert mobile home park POHs to TOHs all the time. One advantage of a POH at purchase is that you can change the amount of lot rent vs. home rent immediately without any pushback from the resident as they only care about the total of the two, and even if you increase the lot rent astronomically above what mom and pop has on the TOHs, it's still cheaper to the POH resident than what they were paying. It might take you years to raise the lot rent on TOHs to market levels, whereas you might be able to get there immediately with a POH.

The important issue is simply to only count the lot rent (real property income) when doing your calculations. That's not to say you can't buy a park with POHs and do great, just you can only count the lot rent from those POHs and assume that you will sell them off -- or give them away -- as fast as you can after purchase. Most park owners call this a "conversion" when you convert a renter into an owner.

The business model always works best when the resident is an owner and therefore stakeholder in the business model. They own the home and you own the land. That's the correct model all park owners work towards.

If the tenant is current on their rent, you are probably best off to pay to fix the hot water yourself and then bill it back to them -- maybe in monthly installments they can afford. It is illegal to turn off the tenant's water in 99.99% of all cases, but you can talk to the Texas Manufactured Housing Association (TMHA) in Austin and they can tell you your rights as a park owner.

The expense ratio on a park of this size with private sewer is more like 40% to 50%, with a projected NOI range of around $25,000 to $30,000. At a price of $449,000 that equates to a cap rate of around 5.5% to 6.7% -- no way it's anywhere near 9.38%.

But the bigger problem is those are the cap rates if the property is in PERFECTLY USABLE CONDITION. You are telling me that there are meters to install, city water to install (plus probably road repair and other items) and those must all be deducted from the price as you will have to pay them at some point going forward.

The bottom line is that the asking price looks to me to be nuts and should be more like $300,000 less whatever the costs are to fix those infrastructure items -- so basically less than half of the asking price.

Just trying to keep you out of trouble.

I have not seen the park or the numbers so these guesses are just based on averages. It's possible it's the best deal of all time but not from where I sit.

You have a lot of issues to ponder and do diligence on:

1) Is the home legal to move and re-occupy (is it pre-HUD)? Does it have a HUD seal?

2) Who will be carrying the risk of it falling apart in transport (better not be you)?

3) Is this a HUD state and do you have to do site preparation first?

4) Will the move violate any home warranties?

5) Is everything with this move 100% approved by the city?

6) Are there any permits needed?

7) Who is carrying the liability insurance on this move?

8) What happens if the home arrives at the new lot and the doors don't open and close, etc.? Who is liable?

9) Does the lot you are moving the home to have all working utilities?

10) Who is going to pay for the new skirting (the old rarely fits as the height of the home will be slightly higher or lower)?

11) Who is paying to modify or replace the deck, since that height has changed, too?

12) Are there ay fences, carports or sheds to move and who pays for that and insures those moves. etc.?

The bottom line is that moving a mobile home is never simple or cheap, and you have to think through all the bad things that could happen and who pays for them and shoulders the risk.

I don't know the regulations in Canada, but in the U.S. lagoons are something that you should only buy if you can connect to city sewer or you have 100% vetted the state, county and city regulations and are 100% confident you won't have to remove it or modify it. Private sewer improvements can easily cost $500,000 or more. I know many operators who got destroyed with lagoons, as most states/counties/cities are trying to outlaw them. You should do a huge amount of focused diligence on this topic before you even think about buying one.

We buy from all factories, but most of our homes come from CAVCO and Clayton. Due to Covid, deliveries are slower and prices are higher, so you need to shop around aggressively.