One of my parks is a one star park. When a home needs to be replaced it has been difficult selling the new homes. The average tenant who lives in our park does not have a credit score that would qualify them for the purchase of a brand new home.
I am thinking about renting out brand new homes, that don’t sell, for a few years, and then sell the home. This would allow us to bring in income and also allow for us to sell the home at a reduced price.
Example: $34,000 brand new home, which no one qualified for can be rented out at $730/month (includes $330 lot rent) for three years. We would make $14,400 on renting out the home (not including regular rental maintenance). Then this home can be sold for $22,000, which is a much more reasonable price in our park.
My first park was a 1.5 star park in a mediocre market and I couldn’t get a high enough price on nicer homes to really justify the cost. What I ended up doing was calculating in some degree of loss on the home that would be recouped from collecting the lot rent and boosting the value of the park. Ex: I might have to discount a home $5000 below what I paid for it, but I would occupy a lot which would boost the value of the park $20,000+
With your proposed scenario I would be worried that you’re going to get low quality tenants who don’t care about and are likely to trash your nice new home. Without knowing your exact situation I would be inclined to just lower the price and/or use a rent credit program with a longer term. You might lose less in the long run with this strategy since at least you’ll have tenants who feel like they have an ownership stake in the home.
Thank you so much for your reply! I hadn’t even thought of selling the home for less than it is worth since I never have to do that in my other park, but I see your point. I will run some numbers to see how quickly I will make up for my losses.
I didn’t realize how different running a 2 star park and a 1 star park would be. Whew, it’s been a challenge!
I would not rent new homes. The tenants will destroy them and move out leaving you maintenance expenses that will surpass any income earned. Combined with depreciation you will take considerable losses.
@EricBarshinger - I do not think it is a bad idea, depending on how strong your market is. I was at a conference recently at which a small multi-park operator, Spencer Roane, gave a talk on doing exactly what you propose. He only buys new homes - not used ones. He believes the extra quality and lifespan is worth the money and pays you back in other ways. He then rents the homes out (actually leases them with an option to purchase) until they sell. Claims to have been successfully using this strategy for years.
@EricBarshinger - tell us about your market. Unemployment rate / apartment rents / population growth rate / SFR median prices / apartment vacancy rate. A lot depends on the market. If you have a weak park but it’s located in a very strong market your strategy could still work. In my market new two bedroom apartments are going at $1,100 per month. My park is definitely 1 star but it’s in a 3 star market. I’m busy cleaning it up and not advertising one bit but I am still getting a lot of applications and people trying to move in.
@EricBarshinger - finally, my plan is to do what Frank suggests - I will bring to market one handyman special, one rehabbed home in the $5K range, one rehabbed home in the $10-$15K range and then one brand new home in the $30K range - and see which do better - then rinse and repeat.
“…was at a conference recently at which a small, multi-park operator, Spencer Roane, gave a talk on doing exactly what you propose…Claims to have been successfully using this strategy for years.”
My Husband and I own a Turn-Around MHP in a very strong rental market.
Personally, I can see where renting out brand new homes could be a successful venture as you can have stable, hard-working Tenants who just might not have the credit score needed for purchasing a MH from a conventional mortgage company.
My Husband and I just recently purchased a trade in 2000 16 x 80 Single-wide MH for $10,000 (additional $2,500 to move it = $12,500).
The trade in MH needs some minor repairs/renovations: paint, flooring, replace some roof shingles. Once those repairs are completed we will rent (or maybe sell it).
After buying the 2000 MH my Husband and I had a “discussion” concerning buying used MHs versus buying new MHs. I suggested that we purchase just new Single-wide MHs going forward.
Now for our area we did get a good deal on the 2000 MH, but those deals are few and far between these days.
I agree with what @Ivan_ilych said concerning Spencer Roane:
“He believes the extra quality and lifespan is worth the money and pays you back in other ways.”
This has been my current approach in this park. I usually have a line of tenants looking for homes. However, the tenants usually don’t have strong credit. I want to improve the park, which is why I want to bring in new homes. I believe, if I can have a solid quarterly or bi-yearly inspection program in place, I can avoid my homes from getting destroyed.
I am also planning on having a Rent credit program in place to allow for a possible ownership opportunity for tenants that prove to live and pay like a higher credit tenant.
The only prospective tenants that are willing to buy our Handyman specials all want to live in them as is since they are dirt cheap. It is incredibly rare to have an actual handyman buy them.
Any home under 15k sells almost instantly, which is why I want to rent out a new home to drive the selling price down to around 20ishK after getting 24K from 5 years of renting it.
Eric - my partner and I own a park that sounds similar to yours and are considering a similar strategy bringing in newer homes and renting them using a rent credit program. Could you let us know how you decided to approach this and how have things worked out so far?