What do you guys use as a general estimation of R&M on the POHs? I’m looking at a deal right now where 60% of the homes are park owned. The plan would be to sell them to the tenants but in the interim I have to budget for repairs. The seller’s current financials show an amount that when you pull out the estimated lot R&M would be $300 per POH per year. That sounds pretty low to me. The MSA is good and I’m inclined to believe the tenants are good as well which may explain why his expense is low. Anyone have general price per home they use or a scale depending on the situation?
I realize it may be a grey area, but is there any sort of rough rule or scale that you would use? Anyone?
It depends so much on the age of the home (how likely is stuff to start breaking), the quality of the tenants (old people and handymen are better than college kids), whether you’re doing repairs yourself or with a tenant handyman on the cheap, and the size of the Park. In general it’s typically 15-20% income, but can be more in odd cases, sometimes less when bubblegum and bailing wire are used to fix everything.
Generally you have rules like anything under $100 or $200 is responsibility of the tenant too, which can help some. But then repairs are neglected until they cost more so you cover them.
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The present condition and tenant are major factors. It also comes down to the quality of community you wish to maintain. Additionally as a new owner expenses need to be calculated over a long term not based only on a one yearly snap shot. You could get away with a few hundred per year until the roof requires replacement then your annual average cost skyrockets. Long term expect the cost to be roughly 50% of the rental income. That is a industry standard for SFH rentals.
How much you need to budget is 100% dependant on how fast you can off load them to buyers.
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And to add on to Greg’s point, certain tenants will quickly move over, others you may have to incentivize (if that’s something you want to do), and the rest you will have to non-renew leases and rehab the home for resale to someone new.
You can do the conversions in three months reasonably - it’s really just a paperwork exercise. Be sure before you convert these people over to owners they can afford to and are committed to make the external improvements to the homes needed to meet your reasonable Park rules. There’s nothing worse than making a renter an owner, and then they won’t (or don’t have the money) to repair their home and you end up evicting them shortly after.
The POH repair budget should really be quite minimal, and really should be a focus on how many homes do I expect to rehab for resale. For each home you just need to estimate how much it would take to get it in sellable condition, and then make some assumptions about the number of tenants you expect to convert versus remove in those POH’s (e.g. ask during the tenant interviews during diligence to get a rough estimate).
Rehabbing a number of homes will obviously take more time than 3 months unless you have a good established contractor pool in place.
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There’s another thread here called “POH is evil?” which discusses some of this. The takeaway is that I would use a rough scale of 100% expense ratio on the home expenses. That’s maybe more like $300 per POH per month. On average. Because you may have 24 months of good tenants paying and then you need a new roof that wipes out your entire “profit.” Or floor repair, or whatever. Mobile homes, like any home, need maintenance – but the construction is less durable and tenants can be less respectful to the physical premises, on average, compared to apartments. Maybe. Or, take 50% of the apartment expense ratio and realize that the other 50% is your lot rent, so that’s 100% expense ratio w.r.t. your “home rent” portion.
Brandon@Sandell
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