As someone with a lot of experience in real estate investing I am extremely concerned with the valuations on parks. Parks that 5 years ago would have sold for 15 caps are now selling at 7 or 8 caps. There is really a bubble. And when that bubble pops (interest rates rising, etc.) MHP prices will be the first to fall. Heck you can get a 7 or 8 cap in a large city owning an actual building that has inherent value. I am going to hold off on purchasing.
What do you mean “inherent value?”
OK, let’s break that post down piece by piece.
I’ve been buying mobile home parks for 20 years, and the cap rates have never been 15%. They have always held in a range of 5% to 10% on decent properties. Five years ago, cap rates were the same as they are now.
Income properties are based on just that: income. Mobile home parks have flourished since 2007’s Great Recession because they focus on affordable housing, which is growing in demand daily as the U.S. economy falls apart. If you think that the U.S. economy is getting stronger and will rocket ahead in the future, then you should be buying McMansions and not mobile home parks. It is a contrarian bet on a poorer America. There is no bubble in income properties unless you assume that rents or cap rates will collapse. Not a chance, in my opinion, when it comes to affordable housing. Class A apartments would scare the heck out of me going forward. You have to invest in what you believe in.
You cannot get a 7% or 8% cap rate on a building in a large city. I get emails from brokers every day on everything from office buildings to industrial, and the going cap rate is around 5% on a quality property in a large metro. And even if they were at 7% or 8% cap rates, I still would not buy them because the future for those tenants is awful, and the income is probably going to drop.
My bet is that cyapt81 is an office building broker, trying to drum up customers. Good luck on this Forum – everyone here is too smart for that nonsense.
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Thank you for that excellent response Frank!! I would suspect even that the original poster does not truly understand what a cap rate is because he is only a ‘regular investor’ rather than a knowledgeable mhp or commercial re investor !!
There are still too many people who do not really get the concept of the cap rate. So in that vein of thinking, let me ask you, Frank a question as I am new to the forum and both want the answer as well as want to test the feature here that claims it will send an alert to you when you are mentioned in the reply text. I am a high functioning autistic so forgive my need to test both you and the software for reliability. My question is this:
Is it really acceptable to equate a 7 or 8 cap rate with a reference to 7% or 8% cap rate?? Because mathematically speaking, they are completely and totally different!! The numbers 7 & 8 are NOT EQUAL to .07 or .08 !!! I do understand NOI and why the % term is referred to or used because of the ratio in the definition of cap rate. But my hyperliteralness due to my disability needs to know so I can verbally explain and be clear with non- autistic friends and business people. Thank you!!
I got an email from a broker in CO regarding a MHP - 70 MHP with cap rate of 5.7% SP $5+ million - telling me it’s a great upside opportunity. This cap rate is worse than multi-unit property, so I said no thanks!
– vilas
You may be correct, but always make sure to look at the lot rent on those listings vs. the market rent. We see deals all the time where the mom and pop owners are $100 to $200 per month less than market, and a 5.75% cap rate can transition into an 8%+ in one rent bump. The multi-family playing field is pretty consistently flat on potential rent increases, as most of those owners are fairly sophisticated. Mobile home park owners can often stop raising rents for decades and don’t seem to stay on top of market rent opportunities. The best example is the park I bought years ago in Grapevine, Texas, in which the lot rent was $100 per month and the market was $350 per month. I raised the rent from $100 to $275 in 60 days – and I was still the lowest cost provider in the city by almost $100 per month. Mom and pop had not raised the rent in 30 years, so I had to make back 30 years of inflation adjustment in one take. Residents still appreciated the value and not one single one moved out. Low prices are not what’s key, it’s solid value for the dollar.