Here is the situation. I own a 68 lot MHP in Minnesota with around 24 vacant lots. As the years go by if I do not do anything this number will go up from people running away from their 1970’s era tear downs.
So far I have brought in 3 brand new homes. The first one is on a rent credit and will be sold very soon through the cash program to current tenant. The other two I have had since December and have had no luck with nor a ton of interest even though tax return season has come and gone.
In my market it seems the sweet spot is for used homes between $20,000 - $25,000. I have brought in 2 of these used homes so far and sold them and sold another one that came with the park purchase. Problem is they are very hard to find right now and for a low enough price where after I move and re set I can break even around $20,000 - $25,000.
So going the used home route will seemingly take forever to fill my empty lots. That leaves new homes which I can get no problem. I have been considering a plan to purchase new homes through the Cash Program’s Community Owned program or other lender groups of 5 homes at a time to rent out.
For example here is the math for 10 new homes to make it easy:
10 Homes @ $38,000 each from factory = $380,000
Setting 10 Homes @ $10,000 each = $100,000
Total Expense = $480,000
Say $100,000 down payment and $380,000 loan
Homes would rent for $800.00 - $325 lot rent = $475.00 home rent
10 lots rented @ $325 = $39,000 per year - 1 Month Vacancy = $35,750
10 homes rented @ $475 = $57,000 per year - 1 Month Vacancy = $52,250
Total = $88,000 / year with vacancy
I figure the home rental income would cover mortgage payments on the homes and the lot income would go straight to my bottom line. I do not foresee any additional expenses from those 10 extra homes paying lot rent to my park entity.
That means an extra $35,750 to my park LLC’s net income x 10 Cap Valuation = $357,500 added to value of park. Plus the extra $35k each year in income.
Fast forward 10 years and homes are paid off and worth around $25,000 - $30,000 each which I can then sell or keep. 10 homes x $25,000 = $250,000 cash or inventory
So after 10 years I spent $100,000 to make:
$35,750 x 10 years = $357,500 in net income
$357,500 in added park value
$250,000 in cash from sales or home inventory
Total = $965,000 - $100,000 = $865,000
Considerations I have left out:
Mortgage Interest Expense (I look at it as the tenants are paying that for me)
Repairs and Maintenance (I do not see this being too large of a problem with new homes and decent security deposits)
New homes improve the CAP rate at which the park will sell and communities appearance
What am I missing? Any reason I should take another route? I know park owned homes are not a pleasure to own but in my market new home sales are just not happening so far. I can do nothing or?