Pricing for home rentals


#1

Hello, I’m looking at a park that has about 30% occupancy (all TOH). There’s a military research facility about a 15 minute drive away, and after speaking to a couple people there and hearing about employees’ housing problems, it sounds like there could be an opportunity to work with them with rentals. TOH are my clear preference, but if it could work, I’d be open to doing rentals for this. My question is where I’d need to set rent for it to make sense (and then I need to figure out if the area would support this)

My idea would be to use the CASH program to bring in new homes. By my calculations it looks like the lot rent plus the payment on the home would be about $700/month. I’m thinking about it as the lot rent being my “profit” on the rental, and want to charge a rent that covers the lot rent, monthly payment on the home, plus an average expense amount over the lifetime of the home, plus a bit more to have a cushion. In that case, how much above that $700/month in lot rent plus home payment would I need to set rent so that it all nets out and I’m left with the lot rent? Do other people think about it this way?

Thanks,
Peter


#2

I thought the CASH program was for home ownership not for rentals. 21st century does it this way so that two people are on the hook for the home 1) the buyer; 2) the park owner if #1 defaults.

But in principle yes you can finance new homes yourself as Park Owner, have the tenant cover the note, and then lot rent is profit. The issue you will have is that renters don’t take care of homes as well as owners, and you are more likely to have months where these units are not occupied and you have a note to pay (and also repair the home to make it ready for renting again).

This is not a model I would pursue, personally.


#3

I believe there is a program for rentals as well with them , cant recall the terms.


#4

Correct, it’s not my preferred way to go. But I do know that this area is very short of rentals in general, and I should be able to charge a nice amount above that lot rent plus note payment amount. The military research facility employees would be my target. Many of those who aren’t permanently there come for three-year stints – I would be looking to do multi-year leases with them with fairly high deposits, but I also suspect they’d be more responsible renters than are typical for mobile homes. As far as vacancy goes, I’d want to make sure that whatever rent I’d be charging would be adjusted for that expected vacancy, which is why I as the question if anyone else has had this kind of approach.


#5

Do the numbers work if the occupancy stays at 30%, the POHs are sold off to tenants for their book values, and you make your entire living off today’s lot rent? If not, you are overpaying.

Price the homes based on their book value, corrected for actual condition. Put them in a separate LLC and sell them to tenants at fair rates of interest and a payment they can afford. You’ll have years of happy tenants without the headache of running rentals…

Filling it up will consume lots of cash…20-25% down for each home. So it will be a long, slow process. So don’t pay for future growth.

Walk away from this one, son.


#6

There are no POHs, and it’s a 10 cap on my reconstructed P&L just based on existing lot rents and a couple self-storage units. So yes, I do think it works on the existing business as it is. Obviously in looking at a park with this much vacancy, I’d love to get more units in, and I think the CASH program with lower-end units is still a reasonable monthly cost for this area. I’d be looking to move in used units and rehab them, too, selling them off for book value as you suggest.