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One of our clients has a 100-space mobile home park located on a US highway and has sold 30 spaces to a developer for retail uses for $2.2 m and will be selling the remaining 74 spaces for $1.85 m. Furthermore, new mobile homes continue to be built – statistics show that just over 81,000 mobile homes were built in 2016. You did a great job of explaining what should I know if ever I invest in mobile home parks. My uncle has been thinking of investing in mobile home parks, and how it can help us in the long run. I like how this article explained that there are a lot of mobile home parks in the US, and the need also increases because it has cheaper rent than the average apartment rent. It would seem logical that you could design and set up your own mobile home park on land that you have or acquire.
A home is being rented for $425 per month and the lot rent is $200 per month. I will approach the current renter and tell them if they continue paying rent for 3 more years, then I will assign the title over to them and the home will be theirs. In the rent-to-own agreement, I specify that the lot rent is $225 per month(not $200) and after 36 monthly payments of $200 plus lot rent, the home title will be transferred to them. While sellers can be wonderful people, their financials are not to be trusted without extensive verification. There are many expenses that can be missing – and these can have a huge impact on your net income and property valuation.
Leased land expenses
Lowering this temperature setting can save you anywhere from 4% to 22% in energy savings. If done correctly, the process should only take you around two hours to complete. Regardless of whether you own or rent a mobile home, you will need to budget for infrequent expenses. These include things like pet expenses, insurance, cars and more. When it comes to your mobile home, you should also plan for irregular expenses like repairs and upgrades.
In this book, author and investor David Greene shares the exact systems he used to scale his real estate business from buying two houses per year to buying two houses per month using BRRRR. As you will read in any appraisal handbook there are 3 basic valuation methods. However, with mobile home parks two of those methods, the cost and sales comparison methods, have some flaws that skew the results. The cost method does not take into account the business component of the business or occupancy levels.
Rent Increases
If you can create a win-win transaction scenario and be easy to work with they just might sell you their park. If each occupied lot is worth an additional $10,000 then in addition to the profit from the home sale itself you have just made an extra 10k in equity. I actually had someone who was a few months late on rent, decide to hook up to their 14 x 70 home with their ton pickup in an attempt to move it down the road a few miles to a different park. They made it out of the park with the home but about a mile down the road the mobile home separated from the truck and they not only flipped the home but destroyed a truck. You may use this form to volunteer income and expense information for mobile home or RV park property.
As the park owner, every time you sell a home and fill a vacant lot in your park you have just increased the monthly lot rent income as well as the value of the park. Another benefit of owning mobile home parks is that you are often in a good position to buy and sell new and used mobile homes. You can often buy homes that people sell in your park, in nearby parks, repos, or even new homes from the manufacturers and place them in your park and sell them at a profit. Although some investors develop a successful model where they own and rent out mobile homes as well as the land, the more commonly held belief is that owning and renting the land only is the best approach. By having primarily tenant-owned and occupied homes, you develop a tenant base that has a vested interest in maintaining their own home and lot as they have something of their own to take pride of ownership in.
Not actually doing necessary maintenance
The upside is investors are collecting additional money rent on each home, plus space rental. The downside is that conventional financing is difficult when park owned units exceed 20%. It is typically accepted that the average operating expenses for a mobile home park are usually around 35-40% of the gross income as compared to apartments which have in the 50-60% expense ratio. One of the biggest advantages of mobile home park ownership is not only this decreased operating expense margin but the reasoning behind it. Financing mobile home parks in the past was somewhat challenging since most lenders only understood them as being very low end housing. Most lenders will still expect the Buyer to put his own cash of 30% to 40% down and they provide the balance required to complete the purchase.
You might need to install better home insulation or do roof repairs. If the park is on the market for $3 million I will probably pass. If the park is on the market for $1,800,000 or less than I will probably look into it further.
Affordable housing vs. five-star MHPs
All of these things and more can do a lot of damage without you even realizing it. Some buyers tell me they want at least a 7 cap, some say 10 cap, some say 15 cap. Not every park has all of these expenses and some have additional expenses but this is a good starting point.
The rent increases not only increases your net income but also adds value and will serve you well when it comes time to sell. It reflects on the cap rate which in turn determines the value of the park. A mobile home park in Laguna Beach, California recently sold for a reported $80 million.
However, if you set it up with the chassis it is considered personal property, and you will have to pay two types of taxes each year. First, you will pay personal property tax for the mobile home and you will pay property tax for the land since you own it. When you raise the rent by $10, $15, $20 or more in a mobile home park, it is less justifiable for a renter to spend several thousand dollars to move their home to save $10 or $20 per month.
For example, think about how much you pay weekly for gas in your car or groceries for the family. It might be worth setting up a carpool system with a neighbor or friend. You could also try starting a community garden if your mobile home park allows it.
We’ve outlined just a handful of these cost-cutting mobile home life tips below. Taking into account your living situation, you can determine how much you’ll need to budget each month for mobile home expenses. The key then is to reconcile the tax return with the profit and loss statement and then interject reality into the whole process.
One of the most important things you can do to decrease your energy bills is to check for any open air pathways leading into your home. You might think this is an obvious thing to look for, but it doesn’t take a gaping hole in a wall for your electricity bills to suddenly skyrocket. Look for more inconspicuous troublemakers like loose doors, cracked windows, openings in the attic, etc.
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