I have my first park under contract in a low risk area. The numbers make sense but if I lose 30% of my tenants or income I will have to pay the mortgage out of pocket. You read and hear that affordable housing demand will only get better in tough times, but is that really the case? Seems like the tenants in our world would be some of the first to suffer. Even if they are not employed by the most affected industries, the world is so connected now that a factory worker in NC could suffer if they make parts that go to California and they are shut down. How much pain can we as MHP operators/owners expect. Would you buy a park with 19 tenants now?
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Good question. What we have been doing is reviewing all of our tenants jobs to see what impacts we could have. If I was looking at a new park, I would find out where they work and evaluate from there. Fortunately most of ours are in a good industry.
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My very unscientific analysis is:
High risk tenants are:
-Any tenant with a house payment
-Any tenant in an older pre 1980s home or home that hasnât been well kept. If they blow out, they may abandon a home that costs more to repair than it is worth
Low risk tenants are:
-Any tenant who owns a reasonable well kept home, ideally 1980 or newer. Even if they leave, they will either sell the home to someone else, or leave an asset for the park that the park can quickly resell.
The local market also plays a big roll. Even junky homes in a recession will likely find high demand if the park is in a good location, while even nicer homes may struggle to sell in weaker markets.
Iâd welcome other perspectives, as Iâm largely speculating on the above
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I think any answer you get to this question is going to be a lot like half the media sound bytes on the news regarding this âpandemic eventâ. The honest truth is no one knows. I always said that I never felt the need to go to a casino because I gamble every day by being self-employed. The difference is I like the odds of betting on my own hard work better than playing against a casino. IMHO⊠you are the only one that can answer that question because you are the one rolling the dice and betting on your own success.
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You are asking the million dollar question, and nobody knows the answer. I am sure our properties will not perform as well over the next few months, but donât know how bad it will get. You may want to write an offer valued slightly less than what it would be in perfect conditions but slightly higher than your worst projections.
If you target has 19 tenants out of 30 lots, thatâs not so bad and it gives you upside. 19 tenants out of 200 lots is going to be a heavier lift but has more upside. My opinion is that smaller parks are harder to manage than larger parks.
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Thank you for the feedback @mPark. Just curious as to why you say smaller parks are harder? The target has 23 pads. 19 homes on them. 16 POH
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Generally, there is less money to pay for management and there is a shallower talent pool. For example, you are not going to be paying a $30,000 salary to manage a 23 unit park. That means that the owner may have to be a bit more hands-on than otherwise. With 19 tenants, you have 19 manager candidates on site. Assuming 75% are not interested and many of the others are not qualified, you have few choices.
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Generally yes, if they throw in the towel on the home they can likely find an apartment that isnât dramatically more expensive. This isnât the case for residents who own their home.
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This is a great question but hard to answer because non of us even Frank owned MHPâs in 1929. I do believe this asset class is as good as any out there so Iâm not hating on it or the theory⊠but no asset class has blanket immunity. Personally not advising you what to do but I am letting the dust settle before I make a purchase there is a solid chance you may be able to get 3 parks for that price once people realize that this economy is a house of cards and this flew virus is just the first of several straws which breaks the camelâs back.
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I am in the same boat. I am at the point now where I am ready to look for and invest in my first MHP, and am trying to figure out how to navigate the Corona crisis. A few thoughts addressing the key issues in your post:
- To my understanding, the CARES act will include very attractive loans for business owners to pay their mortgage. You might consider looking into this.
- I think there will be an increase in demand for affordable housing from a better class of tenant. Higher working-class types or professionals may look to downsize/grade to save money. This could be an opportunity to increase the quality of your tenant base: more tenants paying in full on time, less drama, better communication.
- Looking at the largest employers in the area is a good idea up front. If there is manufacturing, oil/gas, or large auto plants there is more risk since if that business dries up or moves out it is likely that most of your tenants wonât be able to pay rent. I would suggest looking for an area with government, health, and education as the main employers. These will always be needed and are much more stable.
Furthermore, Iâd suggest meeting with your attorney and seeing if the contract includes any âforce majeureâ or similar clause that allows you to extend the due diligence or push back closing. My current aim is to locate a park to buy and then get it under contract with specific terms/conditions related to benchmarks with the Corona virus response (ex. after the CDC has moved the area to green then we can go forward).
Just ideas. Please keep in mind I am not a lawyer. Please consult your attorney as to your specific needs.
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If suggest to talk to your bank completely open conversation about what kind of workout plan theyâd do for you if you canât collect rent. I bought my first park in the last year. I spoke to my banker last week about the mortgage if our tenants donât / canât pay rent. Without much discussion the bank is giving two options: three month complete freeze or six month principal only freeze on payments (I pay interest & escrow). The bank was fully ready to give this as theyâve been assessing each deal individually.
Luckily for April 1 I donât think itâll be an issue. I donât think weâll see the difficulty in rent collection starting until May 1.
The bank also is still open to another deal with me on another park Iâm looking at. That has to be something of a good sign.
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I believe that all industries will be hard hit, just a different times. China is recovering from the sickness aspect of COVID-19 only to be in the economic impact of it as the rest of the world hits the sickness. Park tenants work in grocery stores, Mickey Ds, industry, farming, everything. They will get sick and they will recover. BUT⊠if they loose a job serving drinks or dinner, they will get a job where there are jobs. Itâs just up to us to follow the lead of our local, State, and Federal governments, pay our mortgages or ask for consideration from your lending institution.
Once things shake out, all the work still needs done. My tenants will be doing it and earning payâŠand paying rent. Just run your business, youâll be fine. Start a new fund so you have 6 months of expenses in reserve. Itâs painful to start, but make it happen. If you have courage, keep it going and use it to buy another park. You got this. It takes grit.
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Re-negotiate the price with the seller so you have more protection.
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