Rural MHP in community of 5000


#1

I’m looking at a park that is 44 spaces currently half full with 10 POH. The town is a rural town of 2500 people with surrounding area of about 5000 people. This in the only park around. The seller is 82 and tired of hustling a park and wants to sell. I’m young and ambitious and believe I could fill the park up. Want get get some feedback from MHU to see what you guys think??? Does the low population size worry you? What growth rate or how many trailers is a worthy goal to add to the park in a year?


#2

It will be very expensive for you to add homes unless you can bring them in and sell to home buyers.
You do not want to have POHs as they are very costly to maintain.
What you need to do is run a test add for mobile homes for sale and see what the response is. This will determine if the park is worth investing in or not. Your goal would be to fill the park with only TOHs .
The low population is a major concern. Are there any larger cities in the vicinity that you could possibly draw from. Is it a descent community or a trailer park. Is it possible to advertise in a wider area and draw in retirees looking to down size.
Could you make it a high quality senior’s/retirement community. That would be your best option if the town population does not support filling the vacant lots with TOHs. You also need to sell the 10 POHs it presently has.
The question is why is it 1/2 empty…is it poor management or simply a dying park in a small community.
My guess would be based on lot rent valuation the park is probably selling at a very low price but if you can not turn it around it is not worth any price. If it is priced based on the lot rents plus home rents it is probably way over priced.


#3

Thanks for your insight. Running a test add is a great idea.

I want to believe the reason the park is half full is that the owner lived 150 miles away and he is 82 (uses a cane to get around). He’s had it paid off and it’s cash flowing and he was hungry to push the park to Improve.

The price he is asking seems to be a good deal to me. Over 15 cap including the 10 POH rent at current park occupancy at only 1/2 full. Without POHs rent at current occupancy the cap is only 9.5.

The park is paved and is in decent shape. I wouldn’t say it’s the nicest but it Much nicer than other parks I have visited. The landscaping is well kept.

The upsides or opportunities that i see are

  1. I live much closer and I’m hungry/ambitious to make improvements to get new tenants.
  2. It’s at a crossroads of a good recreational area especially in the summer I think there’s lots of opportunity for RV spaces and most of the pad can accommodate RV but the current owner has never gone after the RV business.
  3. If I just filled 5 mores spaces the cap rate would go to 13.5. If I filled it to 80% occupancy or 13 more spaces the cap would be well over 20.

#4

In most small towns without a major metro you will see stagnant lot rents, and little appreciation. This is purely a cash flow deal. Commonly lot rent of $200 and home rent at $400. $600 POH lot+home rent for a 3/2 is not good for my investment criteria…

These numbers do not add well to justify bringing in new homes. You would need to find cheap deals and fix them up for $5K… or find full time RV tenants…which is easier in some markets than you would expect.

Another factor - the labor pool is much smaller and difficult to source than in a big city when you need repairs. It takes time to get the right crew in place and more painful than would otherwise be.

Finally your exit strategy will also look like the purchase - expect to sell for a 12-15 cap.


#5

The regulations and zoning for RV are different from MHP. So you can’t just plan on swapping in RV’s. RV is a possible value-add play but you have to see if the local city council is on board. We looked at a very nice park like this and it turned out that the mayor and other councilmembers had investments in competing apartments and were not eager to do much of anything to help the park succeed. The park was subsidizing the city water utility to boot. When we asked the owner where the infill would come from, he said oh they usally come from other parks in the area ( when they get frustrated living in the other dumpier parks with no rules). If poaching from competing parks is your only source of new residents, it will not go very well. We passed.


#6

Don’t include POH rents since maintenance on a mobile home usually eats the rental income leaving only the lot rent as a plus.
My guess is that this park is stagnated and probably has no growth future.


#7

@Jsned If you go to greatplaces.net and see if that town/city/village is part of a larger Metro that is like over 50K in population and is growing in population, I think you would be good. But if those 2 things are not positive, it is going to be a up hill battle, in my option. Now, I would set a bar as to the percentage increase in population that you are happy with, like 5%, or 10%. Also I would look at if employers are moving into the area by setting up Google alerts for the area. Doing a test add is also a good idea as well.