MHP Financial Analysis


#1

First, I am not trying to be mean. Just curious.

I buy MH’s for rental property. I generally earn 30 to 40% ROI per year. In addition, I get depreciation on the whole amount of the purchase.

I see the posts asking if a MHP purchase in question is a good deal. I put a calculator to the numbers and get an average ROI of 13%. In addition, you can only depreciate the improvements to the land.

I need to buy or develop a MHP in order to have some more sites to put my MH’s, but the returns does not justify the investment. What am I missing? I know a few MHP owners are cashing out because their park is in a prime location – especially in Florida. But most MHP’s that I have seen are in more remote locations.

My stock broker called me the other day asking if I would be interested in an initial purchase option (IPO) in a real estate investment trust (REIT) paying 10% in dividends with a very good potential of stock price appreciation. I told him that I am using my money to buy rental MH’s. He got upset that I would not be interested in such a good deal. I told him that I can make triple the return renting MH’s. He got real quiet.

If some of the MHP owners would reply with their ROI’s and how the ROI is derived, I would appreciate it. Thanks.


#2

Good question, Good topic. I also hope you get many responses.

Bill


#3

I may be able to shed some light on your question. We went through the same thought process before we purchased our MHP last year. We had to act fast since we were in a 1031 exchange. We had to buy real estate, and for 1031’s, mobile homes themselves aren’t considered real property. Also, I thought it would be hard to put a significant amount of money into Lonnie deals quickly, and still get good deals.

You are overlooking the fact that a bank will finance a mobile home park with 25% or less down. If the cap rate on the park is 10% and you can borrow money at just over 7%, with the leverage, your return on investment is closer to 15%. Throw in tax depreciation, and real estate appreciation, and you are probably near 20%. Throw a couple of Lonnie deals or repos in the mix, add a couple of new units, and the returns grow even higher.


#4

Thanks Greg. I figured that the ROI had to include OPM (other people’s money) to make it worth while. As a side bar, one of my old favorite movies is OPM with Danny DeVito. I use it in my business classes to help explain OPM.

I spoke to a buddy of mine who owns a MHP yesterday after I had posted my original inquiry. He echoed what you said in your last sentence. His gravy is renting out his own units or doing Lonnie deals in his own park.

What I am planning on doing for now is “squeeza the juice out of them.” I am going to rent my units for as long as I can. Then when one becomes a maintenance problem, I am going to sell it as a Lonnie deal. Later, I might have to consider a MHP in order to expand further in my business ventures.

Now to my next question: “What is better - buying an established park or developing one of your own?”


#5

Buying a mobile home park unleashes the four profit centers:

  1. Lot rent - “The Power of Owning Dirt” Most costs are fixed so as you rent vacant lots the lot rent goes right to your bottom line… profit.

  2. Buying low (wholesale), Sell high (retail). We buy most of our late model homes (1995 or newer) for $8k - $10k and sell for $18k - $20k on terms.

  3. You are the banker! You are loaning money at 12% - 15%. The money you are loaning is on the retail price even though you bought the home at 30% - 50% of the sale price!

  4. Increase in property value (Equity) Through annual rent increases and filling vacant lots you will realize HUGE equity! The retirement nest egg you have always dreamed of!

The law of numbers is never truer than with mobile home parks. For example, a $10 “nuisance” rent increase will yield big numbers. On a 100 unit space park you will receive an additional $1,000 of rent and $120,000 of increased equity (based on a conservative 10 cap rate).

Corey